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Quarterly Report For The Financial Period Ended 30 June 2019

Financials Archive

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Unaudited Consolidated Statements Of Comprehensive Income

Income Statement

The interim financial statements should be read in conjunction with the audited financial statements for the year ended 31 December 2018.

Unaudited Consolidated Statement Of Financial Position

Balance Sheets

The interim financial statements should be read in conjunction with the audited financial statements for the year ended 31 December 2018.

Performance Review

Variation of Results against Preceding Year Corresponding Quarter
Income Statement
Variation of Results against Preceding Quarter
Income Statement

The Group gross loans, financing and advances increased by 1.8% and 2.2% compared to 2Q18 and 1Q19 respectively. The increase was mainly contributed by growth in Corporate financing in line with the strategy to grow Corporate base customers.

The performance of the respective portfolio for current year quarter as compared to the previous year corresponding quarter, 2Q18 is as follows:

  • Personal financing - The gross balance of the portfolio in the current quarter was lower due to lower disbursements and decreasing portfolio base. This portfolio remains the biggest in the Group.
  • Corporate loans and financing - The portfolio continues to grow and contributed most of the disbursement for the Group.
  • Property financing and mortgage loans - The gross amount for property financing was higher in the current period while gross amount of mortgage loans decreased following conversion of conventional mortgage to Islamic property financing. In aggregate, the asset base has grown over the year.
  • Auto financing - The gross income from auto financing was lower as the Group focuses to grow asset base of other portfolios.
Variation of results against preceding year corresponding quarter
Income Statement
Variation of Results against Preceding Quarter
Income Statement

The Group profit before tax for 2Q19 increased by 10.9% and 19.6% compared to 2Q18 and 1Q19 respectively. The increase was mainly due to lower ECL in the current quarter.

Comparing ECL of 2Q19 and 2Q18, the reduction of ECL was due to improvement in stage 2 of Corporate portfolio and reduction in stage 3 of retail portfolios.

Comparing ECL of 2Q19 and 1Q19, the decrease in ECL was mainly due to improvement of stage 2 Corporate portfolio.

The Group cost to income ratio for 2Q19 of 31.3% slightly regressed compared to 27.3% and 26.3% for 2Q18 and 1Q19 respectively due to higher personnel costs. Nevertheless, the ratio remains below the industry average.

Contribution of Major Subsidiary to Group Financial Holding Company
Income Statement

MBSB Bank Berhad (''MBSB Bank'') is the biggest subsidiary in the Group. Total assets of MBSB Bank of RM 49.02 bil account for 98.7% of total assets of the Group while the equity accounts for 63.2% of total Group equity.

Prospects

Brief Overview and Outlook of the Malaysian Economy

Overall GDP growth was moderate at 4.5% in the first quarter of 2019 (4Q 2018: 4.7%), driven mainly by the expansion in domestic demand. On a quarter-on-quarter seasonally-adjusted basis, the economy grew by 1.1% (4Q 2018: 1.3%).

Domestic demand expanded by 4.4% in the first quarter (4Q 2018: 5.7%), driven by household spending amid weaker capital expenditure.

After three consecutive quarters of robust spending, private consumption growth moderated but remained strong at 7.6% (4Q 2018: 8.4%). This mainly reflected the normalisation in spending following the frontloading of purchases during the tax holiday period. Nonetheless, household spending continued to be supported by income and employment growth.

Public consumption expanded at a faster pace of 6.3% (4Q 2018: 4.0%), attributable to higher growth in spending on supplies and services.

Gross fixed capital formation (GFCF) contracted by 3.5% (4Q 2018: 0.6%), weighed down by weaker private and public sector investment. By type of assets, investment in structures declined by 1.3% (4Q 2018: 1.3%) amid subdued property market activity. Capital expenditure on machinery and equipment registered a larger contraction of 7.4% (4Q 2018: -1.3%), affected mainly by a decline in transport equipment spending. Investment in other types of assets also declined by 2.2% (4Q 2018: 4.5%) mainly due to lower research and development (R&D) spending.

Private investment growth slowed to 0.4% (4Q 2018: 5.8%). Investment activity was affected by heightened uncertainty surrounding global trade negotiations and prevailing weaknesses in the broad property segment. Nevertheless, spending on large multi-year projects provided some support to investment growth, particularly in the primary-related manufacturing and utilities services sub-sectors.

Public investment declined further by 13.2% (4Q 2018: -5.9%), on account of lower capital spending by the Federal Government and public corporations.

(Source: Extracted from BNM Quarterly Bulletin - Developments in the Malaysian Economy, First Quarter 2019)

Overnight Policy Rate ("OPR") reduction to 3.00 percent

The Monetary Policy Committee ("MPC") of Bank Negara Malaysia decided to maintain the Overnight Policy Rate ("OPR") at 3.00 percent.

The global economy continues to expand moderately. Labour conditions in the advanced economies remain firm, while domestic demand continues to support growth in Asia. Leading indicators, however, point to a softening of the near term global economic outlook, with considerable downside risks remaining primarily from prolonged trade tensions. While the prospects of monetary easing in the major economies have somewhat eased global financial conditions, heightened policy uncertainty could lead to excessive financial market volatility.

The Malaysian economy grew within expectations in the first quarter of the year, supported by both domestic and external factors. Looking ahead, while the external sector performance is likely to be weighed down by slower global growth and trade tensions, economic growth will be supported by domestic demand. Household and capital spending will continue to be driven by stable labour market conditions and capacity expansion in key sectors such as manufacturing and services. The baseline projection remains within the range of 4.3% - 4.8%. This projection, however, is subject to downside risks from ongoing uncertainties in the global and domestic environment, worsening trade tensions and extended weakness in commodity-related sectors.

While headline inflation has remained low in the recent period, it is projected to rise in the coming months as the impact of the changes in consumption tax policy lapses. For 2019 as a whole, average headline inflation is expected to be broadly stable compared to 2018. The trajectory of headline inflation will be dependent on global oil prices and policy measures such as the timing of the lifting of the price ceiling on domestic retail fuel prices. Underlying inflation is expected to remain stable, supported by the continued expansion in economic activity and in the absence of strong demand pressures.

At the current level of the OPR, the stance of monetary policy remains accommodative and supportive of economic activity. The MPC will continue to assess the balance of risks to domestic growth and inflation, to ensure that the monetary policy stance remains conducive to sustainable growth amid price stability.

(Source: Extracted from BNM 'Monetary Policy Statement' press release, 9 July 2019)

Monetary and financial developments

Ringgit currency

The ringgit appreciated against the US dollar and domestic bond yields trended downwards during the first quarter of 2019, driven mainly by non-resident portfolio inflows to the domestic bond market. In particular, investors’ risk appetite towards regional fnancial assets improved following the Fed’s signalling of a pause in interest rate increases for 2019. In addition, progress made on trade talks between the US and PR China contributed towards better fnancial market sentiments and supported regional fnancial markets, including Malaysia, during the quarter. As a result, the Government bond market experienced RM7.3 billion of non-resident inflows during the quarter, which led to the decline of 3-year, 5-year and 10-year MGS yields by 24.1, 23.7 and 31.5 basis points, respectively, and the appreciation of the ringgit by 1.4% against the US dollar.

Domestic bond

The FBM KLCI, however, declined by 2.8% in the first quarter to close at 1,643.6 points as at endMarch (end-December 2018: 1,690.6 points). The domestic equity market was affected by a combination of external and domestic factors. In particular, investor sentiments were weighed down by moderating global growth prospects. Domestically, volatile commodity prices and concerns on the outlook for corporate earnings also contributed to the cautious sentiments

Liquidity condition

In the banking system, liquidity conditions remained sufcient at both the institutional and systemwide levels. Reflecting the net inflows during the quarter, the level of surplus liquidity placed with the Bank increased marginally by RM1.9 billion. At the institutional level, most banks continued to maintain surplus liquidity positions.

(Source: Extracted from BNM Quarterly Bulletin - Monetary and Financial Developments in the Malaysian Economy, First Quarter 2019)

Development of the Islamic finance industry

In 2018, financing by Islamic financial institutions grew by 10.5% to RM668.7 billion (2017: 9.4%). The share of Shariah-compliant financing as a proportion of total banking sector financing increased further to 36.6%, as compared to 34.9% in 2017.

This significant growth was partly contributed by the injection of additional Islamic financing assets arising from a merger between an Islamic bank and a non-bank institution in early 2018. Islamic financing to both households and businesses grew by 11.5% and 8.9% respectively, with home financing to households (+5.9%) and financing to large corporates (+4.6%) being the primary contributors to overall financing growth. Growth of business financing to SMEs moderated to 8.9% (2017: 12.5%), in line with the more moderate growth of the economy.

On the funding side, Islamic deposits and investment accounts saw steady growth of 10.2% to RM742.3 billion (2017: 11.7%). Islamic banks’ pre-tax profits grew by 14.8% to RM7.7 billion (2017: 19.8%), resulting in returns on equity (ROE) of 15.7% and on asset (ROA) of 1.1% despite higher provisions following the implementation of MFRS 9 for the banking industry. This compares with the ROE of 12.0% and ROA of 1.5% achieved by conventional banks in Malaysia.

(Source: Development of the Financial Sector (Islamic Finance), Financial Stability and Payment Systems Report 2018, BNM)

Group Prospect

Since the acquisition of Asian Finance Bank Berhad, now known as MBSB Bank Berhad in 2018, the investments of the Group have been upgraded to improve the delivery of products and services at various channels including internet and mobile banking. These investments include upgrade and enhancement of information technology infrastructure and services, people resources and upgrading of branches.

The Group continues the focus to expand the corporate business, to reach the desired corporate retail portfolio mix. As a new Islamic banking group in the industry, the Group is looking forward to expand its products and services which include trade finance, wealth management and internet and mobile banking to cater various segments of customers and depositors.

Barring any unforeseen circumstances, the Group’s prospects for the year are expected to be satisfactory.