President / CEO's Statement
(as appeared in Annual Report 2011)
Dear ShareholdersFY 2011 had been a very good year for all of us at MBSB despite the various challenges and ambiguities that we had faced in the local banking environment.
I am indeed glad we have strived to live up to our mission "Taking MBSB to the Next Level" having grown our organisation organically - strengthening and synergising various areas of the company to where it is today.
The transformation program, "Taking MBSB To The Next Level" which began in 2009 remained in place and as part of continuous improvement, the Business Plan for 2011 was premised on a new theme, "Treading Into An Uncharted Territory". The reason for this theme was simple. With new uncertainties in the local banking sector, MBSB needed to come forth with new products and service ingenuity. It was certainly the right time for MBSB to diversify its product portfolio and not solely depend on any single product - irrespective of its high profitability.
Thus, the building blocks laid by the transformation program had paved the way for us to innovate retail business, which I firmly believe is crucial for MBSB to maintain sustainable revenue growth as industry becomes more competitive.
Business Highlights
It was undoubtedly a challenging period last year especially for the retail business market. Nevertheless, we strived and were able to increase revenue by introducing new and exciting fee-based products for our valuable customers. The key asset driver was Personal Financing-i (PF-i) to government servants, where great emphasis was placed on our unique selling point - affordability and right-pricing. Total financing disbursements for 2011 surpassed RM6.5 billion - a major increase of 101% from the previous year.
We are grateful to all government employee customers who had been loyal and remained supportive of MBSB's PF-i product. Sales for this product had increased especially with the launch of attractive campaigns throughout the year. New packages introduced included the "Waslah", "Exec-i" and "Perwira-i".
On a similar note, our persistent efforts to capture high net worth individuals for Mortgage Ultimate program that was introduced in 2010 also showed remarkable progress. On this improvement, credit is largely due to our qualified and dedicated sales teams and agents - who have helped us to further penetrate the market segment. This was important for MBSB to improve its loan asset and applicant quality.
Meanwhile, a new venture was also initiated last year to market Bancassurance products. We foresee this new undertaking as having great potentials to contribute significantly to fee-based income. This will benefit customers as they are now offered various other banking products, concurrently enabling us to cross-sell our products and attain greater sales productivity. To achieve this, we had entered into strategic collaborations with well established Takaful and Insurance providers, AmAssurance Berhad and Hong Leong MSIG Takaful, to market "Bijak Malaysia" and "i-Save" plans.
At MBSB, our retail business team is also responsible to grow retail deposits. Hence last year, the team had introduced a new savings program for children, "Cheeky Savings Account", which garnered an increase of 21% in new account openings throughout the branches nationwide. In addition, we are also pleased to notify that the retail product range will be further expanded in the first quarter of 2012, with the launch of Auto Finance in March.
In line with branch transformation, branch services have gradually been improved with upgrades and refurbishments. We consider such a change as only befitting MBSB to better reflect our illustrious history of more than 60 years. We trust the new SSCs with a more vibrant look will provide new experiential provisions, such as the self-service "EPF kiosks" and "e-Pay" utility bill services. Further, the branch network was expanded with the opening of two Sales and Service Centres (SSC) in Selangor and six Representative Offices (REP) elsewhere last year.
Year 2011 was a promising year as well for the Corporate Business Division. Property development financing saw a marked improvement with a tremendous increase of 475% in financing approvals. We increased market share by venturing into new growth areas such as Penang, Kuala Lumpur and in some parts of Sabah. In addition to increasing corporate finance activities in these areas, we supplemented company's revenue by securing corporate mortgage loans in these identified locations. For instance, one of the key projects MBSB was involved in 2011 was the granting of a loan facility amounting to RM100 million to Likasbay Precinct Sdn Bhd. It was essentially to finance a proposed residential apartment development complex at Kg. Numbok, Kuala Menggatal and Kota Kinabalu in Sabah. At present, we are at the early stages of proposing to further develop this project via the next two phases.
Elsewhere, our new and exciting initiative in 2011 was the participation in the Oil and Gas sector, one of the National Key Economic Area (NKEA) under the ambit of the Economic Transformation Programme (ETP). In 2011, the company managed to secure more contract financing business in this area. Total approvals for last year amounted to RM411 million.
We were also very supportive of the SME industry, which constitutes 99.2% of Malaysia's business operations and contributes to 56.4% to total employment. The introduction of SME Cash Express in late 2010 has proven to be rewarding for us.
Meanwhile, on the Wholesale Banking side, our relatively new team has made its own mark by entering certain strategic sectors of the economy - education and public infrastructure. Considerable interests in our structured financing products and corporate advisory services had translated to RM3.45 billion in received loan submissions for 2011.
Similarly, we continued to receive generous support from our corporate depositors in 2011, where we managed to attract about 105 new clients, mainly from the various government state agencies and the private sector.
Funding
As an astute financial entity that is responsible to nation building, merely relying on deposits for funding is insufficient. Thus, in order to increase liquidity we had pursued other means of fund-raising exercises. Principally, in 2011 these included activities such as a rights issue amounting to RM500 million, a RM500 million Bai-Inah Islamic financing facility from EPF, and the securitization of RM800 million of PF-i assets with Cagamas Berhad.
Operational Highlights
In view of thinning interest margins being experienced by the banking industry, MBSB's ability to manage cost levels productively becomes increasingly important. On this account, I am pleased to mention that we achieved this last year without compromising profit margins or operational efficiency.
The strategy to outsource non-core operational and sales functions continued in 2011. This certainly deviated from the way we had been traditionally conducting our business in the past, nevertheless it had substantially helped to lower our costs of doing business. On this note, I must stress our overall cost to income ratio for 2011 stood at 21.10%, which is a respectable level as compared to the industry average of 46.7%.
On another note, we continue with the push for excellence in customer service. A key undertaking was the establishment of a Customer Call Centre at Head Office in Kuala Lumpur in October 2011 as a result of growing customer database.
One important initiative that I had personally embarked upon as a top priority upon coming on board was the call for MBSB's inclusion into Bank Negara Malaysia's (BNM) Central Credit Reference Information System (CCRIS). I believe this is of great importance for one single reason - it places us on par with other licensed financial institutions in terms of risk management and credit evaluation. Therefore, it was welcoming news when MBSB was granted the approval by BNM in December 2011.
In the interim, our credit processes were further enhanced when Project Management and Monitoring Division (PMMD) received an ISO 9001:2008 certification in April 2011. PMMD was incorporated two years ago and since then, has played a crucial role in providing technical assessments to project evaluations.
In terms of augmenting our risk management capabilities, we had in June 2011 made an investment in the SAS Rapid Predictive Modeler, a data mining solution. We are of the opinion that this platform will provide better insights on customers' behavioural patterns and demographics, leading to an improved management of the non-performing loans (NPLs).
At this juncture, we are in the midst of establishing a new core banking system. This will be a significant and the highest IT investment for us, but it is imperative in our crusade to stay ahead of competition by increasing service efficiency and for developing new products timely. The investment may bring down the company's cost to income ratio to approximately 25% this year.
Corporate Recovery
MBSB's corporate recovery has largely been centred on the legacy commercial loan accounts. Unfortunately, due to time lapses because of legal contention in some cases, it has unfortunately become a complex issue to us. Considering time is of the essence, since 2009 we have adopted a different approach. We chose to revive the abandoned projects with the participation of new and reputable developers. I must say that the outcome thus far has indeed been most favourable to all interested parties and has partly contributed to the reduction in the net corporate NPL from 18.7% in 2009 to 8.5% in 2011.
Critical Success Factor
In a highly competitive banking environment, it is certainly a formidable task to always stay ahead of competition. We therefore believe the human factor is a key asset in the quest to differentiate ourselves from other players and achieve our goals. It has been my hope that humanising our vision, mission and strategies, with staff playing an integral part of this process will result in a cultural transformation. This will of course be catalysed by our shared values of integrity, teamwork and excellence.
On those lines, we had employed additional 314 staff in 2011, principally to expand the sales and marketing arms and also to have more professionals in view of company's participation in the Oil and Gas sector. However, I must reiterate that we have progressed well in terms of employees' productivity in 2011. In relation to staff cost to profitability ratio, there was a noticeable improvement from 28.6% (2010) to 19.3% in 2011.
Prospects
The outlook for the global financial markets remains bleak, with uncertain economic woes in the horizon, especially in the European Union, Japan and the United States.
Such external factors will have an obvious unconstructive impact on the Asian economies, including Malaysia due to falling demands for our exports. Although with the support from a vibrant domestic demand we do expect Malaysia to grow moderately, but we also feel the surrounding and unavoidable global factors will generally have a negative bearing on consumer spending in 2012.
Hence, going forward, we foresee loan growths for the local financial industry to be lower this year. Amidst all these tests, we shall persist in providing responsible financing to our customers, especially the government servants. As a matter of fact, with the Government's endeavour in executing projects under the ETP, we are also confident in capturing valuable opportunities through our Corporate Business activities.
Despite these vagaries, we shall remain steadfast in executing our business goals and operational enhancements. Barring any unforeseen circumstances we aim to achieve our set targets for this year.
Appreciation
Whatever we stand for today is actually a culmination of all our efforts. I must restate that without the immense support from all stakeholders - our shareholders, customers, business partners - and more crucially, without the employees nationwide, this would not have been quite possible.
A special note of gratitude also goes to the Board of Directors for their wisdom and guidance and Management team for their allegiance to the vision, their honesty, passion and professional discipline.
As the steward of the company, I remain resolute in my endeavour to ensure we continue to operate with clear and defined strategies and uphold a valued driven and trustworthy culture at all times. My belief is that this is key as we move up to the next level of our subscribed theme of "Taking MBSB to the Next Level", which is "Enhancing Sustainable Growth" this year.
God willing, together MBSB shall prevail.
Dato' Ahmad Zaini Othman
President / Chief Executive Officer
15 February 2012