Basel II Pillar 3 - Capital Adequacy Framework Disclosures for Financial Period Ended 31 December 2024

MBSB BERHAD (197001000172 / 9417-K)

(Formerly known as Malaysia Building Society Berhad)

(Incorporated in Malaysia)

BASEL II PILLAR 3 -

CAPITAL ADEQUACY FRAMEWORK DISCLOSURES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2024

CONTENTS PAGE

1.0 OVERVIEW 1-2

1.1 MEDIUM AND LOCATION OF DISCLOSURES 1

1.2 BASIS OF DISCLOSURE 1

1.3 SCOPE OF APPLICATION 2

2.0 CAPITAL 3-9

2.1 INTERNAL CAPITAL ADEQUACY ASSESSMENT PROCESS 3-4

2.2 CAPITAL ADEQUACY 5

2.3 CAPITAL STRUCTURE 6-7

2.4 RISK-WEIGHTED ASSETS ("RWA") AND CAPITAL REQUIREMENTS 8-9

3.0 RISK MANAGEMENT 10-14

3.1 RISK MANAGEMENT FRAMEWORK 10

3.1.1 GOVERNANCE AND ORGANISATION 10-12

3.1.2 INTERNAL CAPITAL ADEQUACY ASSESSMENT PROCESS ("ICAAP") 11

3.1.3 RISK APPETITE 11

3.1.4 RISK MANAGEMENT PROCESSES 12

3.1.5 RISK MANAGEMENT INFRASTRUCTURE 12

3.1.6 RISK CULTURE 13

3.2 RISK ORGANISATION 13-14

4.0 CREDIT RISK 15-41

4.1 DISTRIBUTION OF CREDIT EXPOSURES 17-22

4.2 CREDIT QUALITY OF FINANCING AND ADVANCES 23-30

4.3 ASSIGNMENTS OF RISK WEIGHTS FOR PORTFOLIO UNDER THE 31-39

STANDARDISED APPROACH (“SA”)

4.4 OFF-BALANCE SHEET EXPOSURE AND COUNTERPARTY CREDIT RISK 40-41

5.0 MARKET RISK 42-46

5.1 TRADED MARKET RISK 42

5.2 NON-TRADED MARKET RISK 43-44

5.3 FOREIGN EXCHANGE RISK 43

6.0 LIQUIDITY RISK 45

7.0 OPERATIONAL RISK 45

8.0 INVESTMENT ACCOUNT ("IA") 46-47

1.0 OVERVIEW

The Pillar 3 Disclosure for the financial year ended 31 December 2024 for MBSB Berhad ("the Company") and its subsidiaries (together referred as "the Group" or "Group") is in accordance with Bank Negara Malaysia(“BNM”)Risk Weighted Capital Adequacy Framework (Basel II)(“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 2024 for MBSB Berhad.

The Group has adopted the following approaches in determining the capital requirements in accordance withBNM’sGuidelines on Capital Adequacy Framework (Basel II–Risk-Weighted Assets) and Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets).

• ●Credit Risk - Standardised Approach ("SA")

• ●Market Risk - Standardised Approach ("SA")

• ●Operational Risk - Basic Indicator Approach ("BIA")

• 1.1 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 Group's website at www.mbsb.com.my.

• 1.2 BASIS OF DISCLOSURE

  This Pillar 3 Disclosure is prepared in accordance withBNM’sRWCAF Pillar 3 and CAFIB Pillar 3 Guidelines and is to be read in conjunction with theGroup’sFinancial Statements for the financial year ended 31 December 2024.

  The Pillar 3 discloses theGroup’sassets both in terms of exposures and capital requirements, the information disclosed herein may not be directly comparable with the information in the Financial Statements 2024 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 Board ofDirectors (“Board”) of the Group.

1.0 OVERVIEW (continued) 1.3 SCOPE OF APPLICATION

The Pillar 3 Disclosure is prepared on a consolidated basis which comprises information of the Group including MBSB Bank Group and ("the Bank Group") and Malaysian Industrial Development Finance Berhad ("MIDF") and all subsidiaries.

The basis of consolidation is based on the principles of consolidation adopted in the preparation of the financial statements as disclosed in the notes the Financial Statements for the financial year ended 31 December 2024. 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.

(Formerly known as Malaysia Building Society Berhad)

(Incorporated in Malaysia)

2.0 CAPITAL

The primary objective of the Group's capital management is to ensure that a strong credit rating and healthy capital ratios are maintained in order to support their business and maximise shareholder value.

The Group manages their capital structure and make adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.

The Group monitors their capital using both leverage ratio (which is computed using Common Equity Tier 1 capital divided by total assets including off-balance sheet commitments) and risk-weighted capital adequacy ratio ("RWCR") (which is computed using capital base divided by total risk-weighted assets) as prescribed by Bank Negara Malaysia for licensed financial institutions in Malaysia.

2.1 INTERNAL CAPITAL ADEQUACY ASSESSMENT PROCESS

In line with BNM's Risk-Weighted Capital Adequacy Framework (Basel II) ("RWCAF")–Internal Capital Adequacy Assessment Process ("ICAAP") (Pillar 2) and Capital Adequacy Framework for Islamic Banks ("CAFIB")–Internal Capital Adequacy Assessment Process ("ICAAP") (Pillar 2) the Group has instituted the ICAAP Framework(“ICCAPF”)with the objective to ensure that the Group maintains adequate capital to support its business strategies and operations. The ICAAPF aims to:

• (a) Assess the Group's overall capital adequacy in relation to its risk profile.

• (b) Develop strategies for maintaining appropriate capital levels consistent with theGroup’srisk profile, strategic focus, and business plans.

• (c) Identify all material risks and measure those risks that can be reliably quantified todetermine their impact on the Group’s capital adequacy.

• (d) Ensure capital levels remain above minimum regulatory requirements and are sufficient to support theGroup’soverall risk profile over a dynamic planning horizon of at least three years.

• (e) Conduct stress testing to assess the impact of adverse events or changes in marketconditions on the Group’s capital adequacy.

2.1 INTERNAL CAPITAL ADEQUACY ASSESSMENT PROCESS (continued)

The Figure 1 below depicts the overall framework of the Group:

Figure 1: The Group’s ICAAP Framework

ICAAP results are reported to the Board Risk Management and Compliance Committee ("BRMCC") and approved by the Board before submission to BNM on annual basis.

2.2 CAPITAL ADEQUACY

The Group's capital adequacy ratio is computed in accordance with the Bank Negara Malaysia(“BNM”)Capital Adequacy Framework (Capital Components) and Capital Adequacy Framework for Islamic Banks ("CAFIB") (Capital Components) issued on 14 June 2024. The revised policy documents took effect on 14 June 2024 superseding the version previously issued in 15 December 2023.

The Group has adopted Standardised Approach ("SA") for Credit Risk and Market Risk and Operational Risk is based on Basic Indicator Approach ("BIA").

The minimum regulatory capital requirement for CET1, Tier 1 and Total capital ratio is 7%, 8.5% and 10.5% respectively.

Table 1 sets forth further details on the capital adequacy ratios for the Group as at 31

December 2024.

Table 1: Capital Adequacy Ratios

Group

Capital ratios - after single-tier final dividend (2024: 1.8 sen; 2023: 3.5 sen)

In accordance withBNM’sGuidelines 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 Bank. As at 31 December 2024, URIA risk weighted assets excluded from the Total Capital Ratio calculation amounted to RM548.6M (31 Dec 2023: RM0.0 million).

(Formerly known as Malaysia Building Society Berhad)

(Incorporated in Malaysia)

2.3 CAPITAL STRUCTURE

The total regulatory capital of the Group is categorised into Common Equity Tier 1 ("CET 1") Capital and Tier 2 Capital which are further described below.

CET 1 Capital

CET 1 Capital /Tier 1 Capital (Basel III) comprises ordinary paid-up share capital, retained profits, fair value reserves which includes unrealised gains / losses on Fair Value through Other Comprehensive Income ("FVOCI") instruments, regulatory reserve and net of regulatory adjustments (namely goodwill, deferred tax assets, intangible assets, 55% of cumulative gains on FVOCI instruments, regulatory reserve attributable to financing and other CET 1 regulatory adjustments specified by BNM).

Share capital is the issued and fully paid share capital. Retained profits and regulatory reserve are accumulated reserves reported under Total Equity in the Statement of Financial Position.

Regulatory reserve of the Group is maintained by the subsidiaries, which is transferred from the retained earnings, as an additional credit risk absorbent to ensure robustness on the loans/financing impairment assessment methodology.

BNM Guidelines on Financial Reporting/Financial Reporting for Islamic Banking Institutions requires institutions to maintain in aggregate, loss allowances for non-credit-impaired exposures and regulatory reserve of no less than 1% of total credit exposures, net of loss allowance for credit-impaired exposures. As at 31 December 2024, the regulatory reserve is maintained to meet the local regulatory requirement.

Tier 2 Capital

Tier 2 Capital comprises of expected credit loss allowances on non-credit impaired exposure and requlatory reserves is subject to a maximum of 1.25% of total Credit Risk Risk-Weighted Asset ("RWA").

2.3 CAPITAL STRUCTURE (continued)

Table 2 presents the components of CET 1, Tier 1 and Tier 2 capital.

Table 2: Capital Structure

Group

Breakdown of risk weighted assets in various categories of risk weights are as follows:

Group

Benchmark Rate Risk Equity Position Risk Foreign Currency Risk

Operational Risk Total RWA and Capital

Requirements

1,542,373 32,179 13,567 1,588,119

890,884 -

(1,974) 888,910

-

-

67,302,321

66,603,112