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BANK SIMPANAN BANK SIMPANAN NASIONALNASIONAL

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ContentsContents1.1. Background of BSNBackground of BSN

2. FRS 139 impact to BSN2. FRS 139 impact to BSN

3. Vendor selection process3. Vendor selection process

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Background of BSN Background of BSN

BSN is govern by the Development Financial Institutions Act (DFIA) 2002

DFIA requires BSN to maintain its accounts in compliance with approved accounting standards

BSN was established on 1.12.1974 under the BSN was established on 1.12.1974 under the Act of Parliament 146 Laws of Malaysia 1974 Act of Parliament 146 Laws of Malaysia 1974 and reports to Ministry of Financeand reports to Ministry of Finance

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BSN has more than 5,400 employees with 377 BSN has more than 5,400 employees with 377 branches, 700 ATMs and 59 branches, 700 ATMs and 59 CDMsCDMs nationwide.nationwide.

BSN has in excess of 7 million customers with BSN has in excess of 7 million customers with total deposit of more than RM16 billion, total total deposit of more than RM16 billion, total loans of RM9 billion and total treasury loans of RM9 billion and total treasury investments of RM8.5 billioninvestments of RM8.5 billion

BSNBSN’’s main products include Personal s main products include Personal Financing, Home Loan, Premium Savings Financing, Home Loan, Premium Savings Certificate (SSP), Islamic Banking Scheme, Certificate (SSP), Islamic Banking Scheme, GIRO Savings Account, BSN Matrix and MatrixGIRO Savings Account, BSN Matrix and Matrix--i i Debit Card as well as VISA and Master card. Debit Card as well as VISA and Master card.

Background of BSN Background of BSN ((ctdctd))

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Background of BSN Background of BSN ((ctdctd))

BSN has more than 5,400 employees with 377 branches, 700 ATMs and 59 CDMsnationwide

BSN has in excess of 7 million customers with total deposit of more than RM16 billion, total loans of RM9 billion and total treasury investments of RM8.5 billionBSN’s main products are Personal Financing, Home Loan, Premium Savings Certificate (SSP), Islamic Banking Scheme, GIRO Savings Account, BSN Matrix and Matrix-i Debit Card and VISA & Master card.

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FRS 139 Implementation Issues FRS 139 Implementation Issues

FRS139

Compliance Requirements

Business Implications

How will thenew reportingrequirements beapplied?What additionalinformationneeds to beprovided?

What are the widerimplications onhow the businessis managed

do ledgers and business systemscontain the necessary data and if sowhere?what processes must be changed tocapture and report new data?

how much change is necessary tomeet the additional requirementsarising from FRS 139?do you have sufficient numbers ofsuitably trained staff in the rightlocations?

will profitability be sustained under thenew basis?what will be the impact on yourincome and balance sheet?

what impact will FRS 139 has onregulatory capital requirements andrisk appetite?

Data availability

Process redesign

Systems scalability & architecture

Organization design

Product design & pricing

Profitability & Solvency

Regulatory & risk reporting

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FRS 139 Implementation IssuesFRS 139 Implementation IssuesNew and sophisticated requirements imposed on the system - requires a

combination of Accounting and IT involvements

Front Office systems Incorporation of FRS 139 categoriesDerivation of default rates

How far back is it necessary to go retrieve data / is it currently captured?

Support Application systemsRecording FRS 139 values per categoryInstallation of new accounting logic

Accounting systemsParallel representation of FRS 139 / local GAAPIndependent FRS 139 chart of accountsFair Value calculator

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FRS 139 Impact On BSN FRS 139 Impact On BSN

Current accountingCurrent accounting FRS 139 FRS 139 RequirementsRequirements

BSN recognizes interest income BSN recognizes interest income based on the coupon rate. Any based on the coupon rate. Any amortization of premium or amortization of premium or accretion of discount is accretion of discount is recognized in the income recognized in the income statement over the period of the statement over the period of the tenure of the investment based tenure of the investment based on straight line method.on straight line method.

Recognition of income for Recognition of income for investment in fixed income investment in fixed income securities is based on the securities is based on the effective interest rate.effective interest rate.

Effective Interest Rate Effective Interest Rate –– Fixed income investmentFixed income investment

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FRS 139 Impact On BSN FRS 139 Impact On BSN Effective Interest Rate Effective Interest Rate –– Fixed income investmentFixed income investment

Impact on BSNImpact on BSNBSN currently has fixed income securities in the form of money mBSN currently has fixed income securities in the form of money market arket instruments (long term and short term).instruments (long term and short term).Amortization of premium (net of accretion of discount).Amortization of premium (net of accretion of discount).Recognition of income on effective interest rate method will resRecognition of income on effective interest rate method will result in ult in differences compared to income recognized based on current differences compared to income recognized based on current accounting. accounting. The impact is on the systems and processes. The impact is on the systems and processes.

Action by managementAction by managementManagement need to assess financial reporting system capability,Management need to assess financial reporting system capability,whether the system can recognize the income based on effective whether the system can recognize the income based on effective interest rate method. interest rate method.

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FRS 139 Impact On BSN FRS 139 Impact On BSN FRS 139 FRS 139 –– Categorization of financial assetsCategorization of financial assets

Current accountingCurrent accounting FRS 139 RequirementsFRS 139 Requirements

New requirement under FRS New requirement under FRS 139. No specific requirement 139. No specific requirement under current accounting under current accounting standards. However, BSN standards. However, BSN adopted financial reporting adopted financial reporting presentation based on the presentation based on the requirement of Revised GP 8 requirement of Revised GP 8 issued by Central Bank Of issued by Central Bank Of Malaysia, which is already in Malaysia, which is already in compliance with FRS 139. compliance with FRS 139.

Financial assets are Financial assets are categorized into four categorized into four categories. They are:categories. They are:--

1.1.Fair value to profit and loss Fair value to profit and loss (FVTPL);(FVTPL);

2.2.Held to maturity (HTM);Held to maturity (HTM);3.3.Available for sale (AFS);Available for sale (AFS);4.4.Loans and receivables (L&R)Loans and receivables (L&R)

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FRS 139 Impact On BSN FRS 139 Impact On BSN FRS 139 FRS 139 –– Categorization of financial assetsCategorization of financial assets

Impact on BSNImpact on BSNBSN has adopted the categories of financial assets. The BSN has adopted the categories of financial assets. The measurement basis of financial assets categorized as FVTPL and measurement basis of financial assets categorized as FVTPL and AFS are fair value. Changes in fair value for FVTPL is recognizeAFS are fair value. Changes in fair value for FVTPL is recognized in d in income stmt, whilst changes for AFS is recognized in equity.income stmt, whilst changes for AFS is recognized in equity.Under the current accounting standards, all quoted investments aUnder the current accounting standards, all quoted investments are re recorded at the lower of cost or market value.recorded at the lower of cost or market value.

Action by managementAction by managementManagement has already adopted categorization of financial assetManagement has already adopted categorization of financial assets s in its financial statements.in its financial statements.

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FRS 139 Impact On BSN FRS 139 Impact On BSN Impairment of financial assetsImpairment of financial assets–– loans and receivables (loans and receivables (““L&RL&R””))

Current accountingCurrent accounting FRS 139 RequirementsFRS 139 Requirements

Specific provision Specific provision –– for for nonnon--performing loan performing loan individually identified as individually identified as substandard, doubtful substandard, doubtful or bad;or bad;General provision General provision --based on a percentage based on a percentage of loan portfolio, to of loan portfolio, to cover for possible cover for possible losses not specifically losses not specifically identified.identified.

Every balance sheet date, the Every balance sheet date, the management is required to assess management is required to assess objective evidence of impairment. The objective evidence of impairment. The assessment can be based on individual assessment can be based on individual or collective assessment. or collective assessment. Individual assessment is to compare the Individual assessment is to compare the current book value with the present current book value with the present value of future cash flows (PV of future value of future cash flows (PV of future CF).CF).Collective assessment to determine Collective assessment to determine default rate, based on the historical default rate, based on the historical default rate experience of the portfolio.default rate experience of the portfolio.

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FRS 139 Impact On BSN FRS 139 Impact On BSN Impairment of financial assetsImpairment of financial assets–– loans and receivables (loans and receivables (““L&RL&R””))

Impact on BSNImpact on BSNBSN need to assess at least once at balance sheet date to determBSN need to assess at least once at balance sheet date to determine ine impairment.impairment.For individual assessment, the management needs to determine theFor individual assessment, the management needs to determine the PV of PV of future CF for all identifiable loans and financing. The PV inclufuture CF for all identifiable loans and financing. The PV includes potential des potential recovery from collateral;recovery from collateral;For collective assessment, the management needs to determine defFor collective assessment, the management needs to determine default rate ault rate based on a sample of historical data which is sufficient to reprbased on a sample of historical data which is sufficient to represent the esent the current default rate.current default rate.

Action by managementAction by managementThe management needs to design a methodology to determine defaulThe management needs to design a methodology to determine default rate for t rate for all the loan portfolios for the purpose of collective assessmentall the loan portfolios for the purpose of collective assessmentThe management also needs to design a methodology to calculate The management also needs to design a methodology to calculate impairment losses for individual assessment. impairment losses for individual assessment.

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Vendor selection processVendor selection process

BSN decided to acquire and implement a complete system solution to enable BSN to be fully FRS 139

compliant on Loans & Receivables by 1st January 2010

Request for Information (RFI) ( Sept 2008)

Based on RFI, develop Request For Proposal (RFP) document.(Oct 2008)

Issued Request For Proposal (RFP) –to solicit proposals from vendors (27 Nov 2008).

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Vendor selection processVendor selection processBriefed vendors on the requirement. (3rd Dec 2008).

Tender closed on 24th Dec 2008.

Technical Evaluation Committee (TEC) andCommercial Evaluation Committee (CEC) to evaluateproposals from vendors. Any issues on the proposal is

listed for clarification with vendors.

Vendors presented their proposed solution & clarified issues raised.

TEC and CEC finalised the evaluation scoring based on the approved evaluation matrix.

Evaluation Matrix

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Vendor selection processVendor selection process

Shortlisted vendors performed Proof of Concept (POC). (5 - 11 March 2009)

The Evaluation Committee finalisedscoring for the POC. (15thMarch 2009)

Project Manager presented recommendation forvendor’s appointment to the Tender Committee.

(19th March 2009)

Objective of POC

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Objective of POCObjective of POCTo demonstrate the To demonstrate the shortlistedshortlisted application systemapplication system’’s (AS) s (AS) ability to account for all relevant deals from the bankability to account for all relevant deals from the bank’’s s portfolio according to FRS 139 requirementsportfolio according to FRS 139 requirementsTo demonstrate that the AS can generate accurate To demonstrate that the AS can generate accurate calculations and accounting entries for GLcalculations and accounting entries for GLTo validate To validate the the shortlistedshortlisted vendorsvendors’’ software functional and software functional and technicaltechnical capabilities to support BSN FRS 139 capabilities to support BSN FRS 139 requirements that were defined in the RFPrequirements that were defined in the RFPTo gain better understanding of the To gain better understanding of the shortlistedshortlisted vendor vendor support capability by testing their knowledgesupport capability by testing their knowledgeTo evaluate the comfort level of the bank IT personnel To evaluate the comfort level of the bank IT personnel with the vendor through interaction during the POCwith the vendor through interaction during the POC

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Objective of POCObjective of POC

No Main Criteria Weight age1 Functional Requirements 252 Technical Requirements 253 Experience / Reference Site 54 Implementation 105 Product Support 56 Training 5Total Technical Scoring 757 Pricing 208 Company’s Information 5Total Commercial Scoring 25Overall Total Scoring 100