Malaysia Building Society : Basel II Pillar 3 - CAFIB Disclosures for Financial Period Ended 31 December 2023

MALAYSIA BUILDING SOCIETY BERHAD (197001000172 / 9417-K)

(Incorporated in Malaysia)

BASEL II PILLAR 3 -

CAPITAL ADEQUACY FRAMEWORK DISCLOSURES

FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2023

MALAYSIA BUILDING SOCIETY BERHAD (197001000172 / 9417-K)

(Incorporated in Malaysia)

Contents	Page
OVERVIEW	1
MEDIUM AND LOCATION OF DISCLOSURES	1
BASIS OF DISCLOSURE	1
SCOPE OF APPLICATION	1
CAPITAL MANAGEMENT - INTERNAL CAPITAL ADEQUACY ASSESSMENT	2
PROCESS ("ICAAP")
CAPITAL STRUCTURE	2-6
RISK MANAGEMENT	7-12
CREDIT RISK	13-36
MARKET RISK	37
OPERATIONAL RISK	37
INTEREST RATE / RATE OF RETURN RISK IN THE BANKING BOOK ("IRR/RORBB")	38
ATTESTATION FOR CAPITAL ADEQUACY FRAMEWORK DISCLOSURES	39

MALAYSIA BUILDING SOCIETY BERHAD (197001000172 / 9417-K)

(Incorporated in Malaysia)

OVERVIEW

The Pillar 3 Disclosure for the financial year ended 31 December 2023 for Malaysia Building Society Berhad ("the Company") and its subsidiaries (together reported as "Group") is in accordance with Bank Negara Malaysia ("BNM") Risk-Weighted Capital Adequacy Framework ("RWCAF") - Disclosure Requirements ("Pillar 3") and Capital Adequacy Framework for Islamic Banks ("CAFIB") - Disclosures Requirements ("Pillar 3").

This supplements the related information in the Financial Statements for the financial year ended 31 December 2023 for Malaysia Building Society Berhad.

The Group has adopted the following approaches in determining the capital requirements in accordance with BNM's Guidelines on RWCAF:

• Credit Risk - Standardised Approach ("SA")
• Market Risk - Standardised Approach ("SA")
• Operational Risk - Basic Indicator Approach ("BIA")

MEDIUM AND LOCATION OF DISCLOSURES

The Pillar 3 Disclosure of the Group is published as a separate report yearly and semi-anually: 30 June and 31 December. This disclosure will be made available under the Bank's website at www.mbsbbank.com after the notes to the Financial Statements.

BASIS OF DISCLOSURE

This Pillar 3 Disclosure is prepared in accordance with BNM's Pillar 3 Guidelines and is to be read in conjunction with the Group's Financial Statements for the financial year ended 31 December 2023. This document discloses the Group's assets both in terms of exposures and capital requirements, the information disclosed herein may not be directly comparable with the information in the Financial Statements 2023 published by the Group.

Any discrepancies between the totals and sum of the components in the tables contained in the disclosures are due to summation method and then rounded up to the nearest thousands.

These disclosures have been reviewed and verified by an independent internal party and approved by the Board Audit Committee ("BAC") of the Group, as delegated by the by the Board of Directors ("Board") of the Group.

SCOPE OF APPLICATION

The Pillar 3 Disclosure is derived from consolidated of Malaysia Building Society Berhad ("the Company") and its subsidiaries (together reported as "Group"). The basis of consolidation is based on the principles of consolidation adopted in the preparation of the financial statements as disclosed in the note to the Financial Statements for the financial year ended 31 December 2023. Information on subsidiaries of the Group is also available in the notes to the Financial Statements.

During the financial year, the Group did not experience any restrictions or other major impediments on the transfer of funds or regulatory capital within the group.

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MALAYSIA BUILDING SOCIETY BERHAD (197001000172 / 9417-K)

(Incorporated in Malaysia)

CAPITAL MANAGEMENT - INTERNAL CAPITAL ADEQUACY ASSESSMENT PROCESS ("ICAAP")

Capital management at Group's remains focused on maintaining a healthy capital position through building an efficient capital structure. The capital position and structure of theGroup's are designed to meet the requirements of the Group's key stakeholders i.e. shareholders, customers, regulators, and others.

The Group's aims to achieve the following capital management objectives:

• Ensure that the Bank has sufficient capital to support risk-taking activities across Business Units through business cycles;
• Ensure the Bank has sufficient capital to meet prudential requirements imposed by BNM;
• Ensure that at all times, the Bank is adequately capitalized after taking into account the minimum regulatory capital requirements under Pillar 1, material risks under Pillar 2 and additional buffer required during times of stress;
• Maintain an optimal capital structure that considers both the interests of regulators and shareholders;
• Link and achieve alignment of the business strategy, risk appetite, risk, capital and return dimensions; and
• Promote efficient use of capital, through the internal allocation methodology across the organization.

CAPITAL STRUCTURE

The capital adequacy framework applicable to the Malaysian banking entities is based on the Bank Negara Malaysia ("BNM") Capital Adequacy Framework (Capital Components), of which the latest revisions were issued on 9 December 2020. The revised guidelines took effect on 9 December 2020 superseding the version previously issued in February 2020. The revised guideline has provided for an optional transitional arrangement with regards to the regulatory capital treatment of expected credit losses ("ECL") provisions.

This new optional transitional arrangement allows Islamic financial institutions an election, to add back the amount of loss allowance measured at an amount equal to 12-month and lifetime ECL to the extent they are ascribed to non-credit impaired exposures (hereinafter referred to as Stage 1 and Stage 2 provisions) to CET1 capital on a gradual phase-out basis either over a four-year period from the financial year beginning 2020, or over a three-year period from the financial year beginning 2021.

The Group has elected to apply this transitional arrangement ("TA") for four financial years from the financial year beginning 1 January 2020 to 31 December 2023.

Table 1 sets forth further details on the capital resources and capital adequacy ratios for the Group as at 31 December 2023.

2

MALAYSIA BUILDING SOCIETY BERHAD (197001000172 / 9417-K)

(Incorporated in Malaysia)

CAPITAL STRUCTURE (continued)

Table 1: Capital Structure

Common Equity Tier 1 ("CET 1") CapitalOrdinary share capital

Retained profits

Fair value reserves

Other reserve

Qualifying non-controlling interest

Less : Regulatory adjustments Goodwill

Deferred tax assets

55% of cumulative gains on FVOCI instruments Intangible assets

Regulatory reserve attributable to financing Other CET1 regulatory adjustments

Total CET1 capital

Additional Tier 1 capital instruments

Less: Tier 1 regulatory adjustments

Total Tier 1 capital

Tier 2 Capital

Stage 1 & Stage 2 expected credit loss allowances^

Additional Tier 2 capital instruments Total Tier 2 capital

Total capital

Group

31-Dec-23		31-Dec-22
RM'000		RM'000
7,970,427	7,198,068
1,876,865	2,102,482
(115,908)	(341,366)
106,644	-
-	-
9,838,028	8,959,184
(148,031)	(148,031)
(95,220)	(107,238)
(22,274)	(10,856)
(161,126)	(144,694)
(106,644)	-
-	-
9,304,733		8,548,365
-	-
-	-
9,304,733		8,548,365
545,294	452,361
1,300,000	1,300,000
1,845,294		1,752,361
11,150,027	10,300,726

• Expected credit loss allowance on non-credit impaired exposure and requlatory reserves is subject to a maximum of 1.25% of total credit risk-weighted assets.

Breakdown of risk weighted assets in various categories of risk weights are as follows:
	31-Dec-23	31-Dec-22
Total risk weighted assets ("RWA")	RM'000	RM'000
Credit risk	43,623,502			36,188,860
Market risk	323,809			90,857
Operational risk	2,795,170			2,862,186
Total RWA	46,742,481			39,141,903

In accordance with BNM's Guidelines on Investment Account paragraph 31.1, the credit and market risk weighted assets funded by Unrestricted Investment Accounts (URIA) shall be recognised as risk absorbent and excluded from the calculation of capital adequacy ratio of the Group. As at 31 Dec 2023, URIA risk weighted assets excluded from the Total Capital Ratio calculation amounted to RMNil (31 Dec 2022: RM2,011.5 million).

3

MALAYSIA BUILDING SOCIETY BERHAD (197001000172 / 9417-K)

(Incorporated in Malaysia)

CAPITAL STRUCTURE (continued)
Table 1: Capital Structure (continued)
Capital Adequacy Ratios:
	Group
	31-Dec-23	31-Dec-22
With transitional arrangements
CET 1 capital ratio	19.906%			21.839%
Tier 1 capital ratio	19.906%			21.839%
Total capital ratio	23.854%			26.316%
Capital ratios - after single-tier final dividend (2023: 3.5 sen; 2022: 8.5 sen)
CET 1 capital ratio	19.291%			20.282%
Tier 1 capital ratio	19.291%			20.282%
Total capital ratio	23.238%			24.759%
Without transitional arrangements
CET 1 capital ratio	19.906%			21.839%
Tier 1 capital ratio	19.906%			21.839%
Total capital ratio	23.854%			26.316%
Capital ratios - after single-tier final dividend (2023: 3.5 sen; 2022: 8.5 sen)
CET 1 capital ratio	19.291%			20.282%
Tier 1 capital ratio	19.291%			20.282%
Total capital ratio	23.238%			24.759%

The capital ratios after a proposed single-tier final dividend of 3.5 sen per ordinary share (2022: single-tier interim dividend of 8.50 sen per ordinary share) in respect of financial year ended 31 December 2023 amounting to RM287,780,935 (2022: RM609,576,123).

4

MALAYSIA BUILDING SOCIETY BERHAD (197001000172 / 9417-K)

(Incorporated in Malaysia)

CAPITAL STRUCTURE (continued)

Table 2: Capital Adequacy - Risk-Weighted Assets ("RWA") and Capital Requirements

Group					Risk
					Weighted	Total Risk
				Risk	Assets	Weighted
31-Dec-23			Exposures	Weighted	Absorbed	Assets after	Capital
Exposure Class	Exposures Pre CRM	Post CRM	Assets	by PSIA	effects of PSIA	Requirements
	RM'000	RM'000	RM'000	RM'000	RM'000	RM'000
Credit Risk
On-Balance Sheet Exposures
Sovereigns & Central Banks	15,478,776	15,478,776	-	-	-	-
Public Sector Entities	528,371	528,371	-	-	-	-
Banks, MDBs and DFIs	2,407,250	2,407,250	477,640	-	477,640	38,211
Insurance Companies, Securities
Firms & Fund Managers	240,357	240,357	240,357	-	240,357	19,229
Corporates	14,578,345	14,578,345	10,450,549	-	10,450,549	836,044
Regulatory Retail	29,235,817	29,235,817	28,759,041	-	28,759,041	2,300,723
Residential Real Estate Financing	3,024,888	3,024,888	1,178,614	-	1,178,614	94,289
Higher Risk Assets	1,407	1,407	2,111	-	2,111	169
Other Assets	1,110,297	1,110,297	1,001,250	-	1,001,250	80,100
Total for On-Balance Sheet
Exposures	66,605,508	66,605,508	42,109,562	-	42,109,562	3,368,765
Off-Balance Sheet Exposures
Off balance sheet exposures other
than OTC derivatives or credit
derivatives	1,668,234	1,668,234	1,513,940	-	1,513,940	121,115
Total for Off-Balance Sheet
Exposures	1,668,234	1,668,234	1,513,940	-	1,513,940	121,115
Total On and Off-Balance Sheet
Exposures	68,273,742	68,273,742	43,623,502	-	43,623,502	3,489,880
Market Risk	Long Position	Short Position
Benchmark Rate Risk	2,389,730	(2,348,721)	-	78,183	-	78,183	6,255
Equity Position Risk	32,329	-	-	64,658	-	64,658	5,173
Foreign Currency Risk	180,968	(184)	-	180,968	-	180,968	14,477
Operational Risk	-	-	-	2,795,170	-	2,795,170	223,614
Total RWA and Capital
Requirements	70,876,769	65,924,837	68,273,742	46,742,481	-	46,742,481	3,739,399
				5

MALAYSIA BUILDING SOCIETY BERHAD (197001000172 / 9417-K)

(Incorporated in Malaysia)

CAPITAL STRUCTURE (continued)

Table 2: Capital Adequacy - Risk-Weighted Assets ("RWA") and Capital Requirements (continued)

Group					Risk
					Weighted	Total Risk
				Risk	Assets	Weighted
31-Dec-22			Exposures	Weighted	Absorbed	Assets after	Capital
Exposure Class	Exposures Pre CRM	Post CRM	Assets	by PSIA	effects of PSIA	Requirements
	RM'000	RM'000	RM'000	RM'000	RM'000	RM'000
Credit Risk
On-Balance Sheet Exposures
Sovereigns & Central Banks	11,306,926	11,306,926	-	-	-	-
Public Sector Entities	758,623	758,623	34,387	-	34,387	2,751
Banks, MDBs and DFIs	1,068,257	1,068,257	235,938	-	235,938	18,875
Insurance Companies, Securities
Firms & Fund Managers	240,357	240,357	240,357	-	240,357	19,229
Corporates	10,543,211	10,543,211	7,601,596	-	7,601,596	608,128
Regulatory Retail	25,193,257	25,193,257	24,792,218	-	24,792,218	1,983,377
Residential Real Estate Financing	2,907,571	2,907,571	1,104,790	-	1,104,790	88,383
Higher Risk Assets		-	-	-	-	-	-
Other Assets	1,135,613	1,135,613	927,043	-	927,043	74,163
Total for On-Balance Sheet
Exposures	53,153,815	53,153,815	34,936,329	-	34,936,329	2,794,906
Off-Balance Sheet Exposures
Off balance sheet exposures other
than OTC derivatives or credit
derivatives	1,381,105	1,381,105	1,252,531	-	1,252,531	100,202
Total for Off-Balance Sheet
Exposures	1,381,105	1,381,105	1,252,531	-	1,252,531	100,202
Total On and Off-Balance Sheet
Exposures	54,534,920	54,534,920	36,188,860	-	36,188,860	2,895,109
Market Risk	Long Position	Short Position
Benchmark Rate Risk	-	-	-	-	-	-	-
Equity Position Risk	-	-	-	-	-	-	-
Foreign Currency Risk	90,857	-	90,857	90,857	-	90,857	7,269
Operational Risk	-	-	-	2,862,186	-	2,862,186	228,975
Total RWA and Capital
Requirements	54,625,777	54,534,920	54,625,777	39,141,903	-	39,141,903	3,131,352
				6

MALAYSIA BUILDING SOCIETY BERHAD (197001000172 / 9417-K)

(Incorporated in Malaysia)

RISK MANAGEMENT

The Group has exposures to one or more of the following risks:

1. Credit risk
   Arising from the possibility of losses due to an obligor, market counterparty or issuer of securities or other instruments held, having failed to perform its contractual obligations to the Group;
2. Market risk
   Arising from fluctuations in the market value of the trading; or investment exposure arising from changes to market risk factors such as profit rates, currency exchange rates, credit spreads, commodity prices and their associated volatility;
3. Liquidity risk
   Arising from the Group's ability to efficiently meet its present and future funding needs or regulatory obligations, when they come due, which may adversely affect its daily operations and incur unacceptable losses;
4. Operational risk
   Arising from risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events;
5. Profit rate/rate of return risk in the banking book
   Current and potential risk to the Group's earning and economic value arising from movement in the profit rates/rate of return;
6. Capital risk
   Arising from the failure to meet the minimum regulatory and internal requirements; and
7. Shariah non-compliance risk
   Arising from possible failure to comply with the Shariah requirements as determined by SAC of BNM and Securities Commission ("SC"), the Shariah Committee and other Shariah regulatory authorities.

7

MALAYSIA BUILDING SOCIETY BERHAD (197001000172 / 9417-K)

(Incorporated in Malaysia)

RISK MANAGEMENT (continued)

1. Financial risk management objectives and policies
   Risk management forms an integral part of the Group's activities and remains an important feature in all its business, operations, delivery channels and decision-making processes. The extent to which the Group is able to identify, assess, monitor, manage and report each of the various types of risk is critical to its strength, soundness and profitability. The Group's risk management function is independent of its operating units. All new businesses, introduction of new products, engagement in new activities or entrance into new strategic alliances are subject to endorsement by the Risk Management Division and submitted to the Audit Committee ("AC"), Risk Management Committee ("RMC") and/or Board of Directors for approvals.
   In essence, the objectives of the Group's risk management activities are to:
2. 1. Identify and monitor the various risk exposures and risk requirements;
   2. Ensure risk-taking activities are consistent with the approved policies and the aggregated risk positions are within the risk appetite as approved by the Board; and
   3. Help create shareholder value through proper allocation of risk and the facilitation of independent risk assessments of new business and products.
3. Risk Management Framework
   The Group employs an Enterprise-wide Risk Management Framework to manage its risks effectively. The framework involves an on-going process of identifying, evaluating, monitoring, managing and reporting significant risks affecting the Group which is implemented through a number of committees established by the Board of Directors. This framework provides the Board and the management with a tool to anticipate and manage both existing and potential risks, taking into consideration dynamic risk profiles as dictated by changes in business strategies, regulatory environment and functional activities throughout the year.
   Key features of the Risk Management Framework include:
4. 1. Governance and organisation
      A strong governance structure is important to ensure an effective and consistent implementation of the Risk Management Framework. The Board is ultimately responsible for the Group's strategic directions, which is supported by the Risk Appetite and Risk Management Frameworks, policies and procedures. The Board is assisted by various risk committees and control functions in ensuring that the Group's Risk Management Framework is effectively maintained.

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