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Quarterly Report For The Financial Period Ended 31 December 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 2.0% and decreased by 1.7% compared to 4Q18 and 3Q19 respectively. The increase in 4Q18 was mainly contributed by growth in Corporate financing in line with the strategy to grow Corporate base customers, and also growth in property/mortgage financing.

The performance of the respective portfolio for current year quarter as compared to the previous year corresponding quarter, 4Q18 and previous quarter, 3Q19 are 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 - Overall, the portfolio continues to grow and contributed most of the disbursement for the Group.
  • Property financing and mortgage loans - The Group is actively converting conventional mortgage to Islamic property financing during the quarter. 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 financial investments increased by more than 100% and 9.2% compared to 4Q18 and 3Q19 respectively.The significant increase is in line with the Group's strategy to grow treasury portfolios.

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 49.79 bil account for 98.5% of total assets of the Group while the equity accounts for 63.4% of total Group equity.


Brief Overview and Outlook of the Malaysian Economy

Growth in the Malaysian economy moderated to 4.4% in the third quarter of 2019 (2Q 2019: 4.9%), primarily attributed to lower growth in key sectors and a decline in the mining and construction activities. On the demand side, most domestic demand components and net exports registered slower growth momentum. On a quarter-on-quarter seasonally-adjusted basis, the economy grew by 0.9% (2Q 2019: 1.0%).

Domestic demand growth moderated to 3.5% (2Q 2019: 4.6%), with private sector expenditure remaining the key contributor to growth.

Private consumption grew by 7.0% (2Q 2019: 7.8%), as household spending normalised towards its long-term trend. This partly reflected strong base effects from the tax holiday spending last year. Nevertheless, spending remained supported by continued income and employment growth, as well as selected Government measures.

Public consumption spending increased by 1.0% (2Q 2019: 0.3%). While emolument growth remained positive, expenditure on supplies and services continued to decline, albeit at a slower pace. This is in line with the Government’s commitment to expenditure optimisation.

Gross fxed capital formation (GFCF) contracted by 3.7% (2Q 2019: -0.6%), on account of slower growth in private sector capital expenditure and a larger contraction in public sector investment. By type of assets, investment in structures contracted by 2.4% (2Q 2019: +1.2%), while investment in machinery and equipment declined further to -7.4% (2Q 2019: -4.2%). However, investment in other types of assets improved to 3.6% (2Q 2019: 1.0%) due mainly to higher research and development (R&D) spending.

Private investment growth expanded marginally by 0.3% (2Q 2019: 1.8%), weighed down by lower capital spending across major economic sectors. Investment continued to be affected by heightened uncertainty surrounding external conditions and continued weakness in the broad property segment.

Public investment remained in contraction (-14.1%; 2Q 2019: -9.0%), reflecting lower capital spending by both Federal Government and public corporations.

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

Overnight Policy Rate ("OPR") reduce from 3.00 percent to 2.75 percent

Monetary Policy Committee (MPC) of Bank Negara Malaysia decided to reduce the Overnight Policy Rate (OPR) to 2.75 percent. The ceiling and floor rates of the corridor of the OPR are correspondingly reduced to 3.00 percent and 2.50 percent, respectively.

The global economy continues to expand at a moderate pace. Latest indicators and the recent dissipation of trade tensions point to improving global trade activity. Monetary easing across major economies in the second half of 2019 has helped ease financial conditions, and is expected to continue to support economic activity. However, downside risks remain due to geopolitical tensions and policy uncertainties in a number of countries. This could cause a resurgence of financial market volatility and weigh on the global growth outlook.

For the Malaysian economy, latest indicators and supply disruptions in commodity-related sectors point to moderate expansion of economic activity in the fourth quarter. For 2019, growth will be within the projected range. For 2020, growth is expected to gradually improve, with continued support from household spending and better export performance. Overall investment activity is expected to record a modest recovery, underpinned by ongoing and new projects, both in the public and private sectors. However, downside risks to growth remain. These include uncertainty from various trade negotiations, geopolitical risks, weaker-than-expected growth of major trade partners, heightened volatility in financial markets, and domestic factors that include weakness in commodity-related sectors and delays in the implementation of projects.

Headline inflation averaged at 0.7% in 2019. In 2020, headline inflation is expected to average higher but remain modest. The trajectory of headline inflation will be dependent on global oil and commodity price developments and the timing of the lifting of the domestic retail fuel price ceilings. Underlying inflation is expected to remain broadly stable, reflecting the continued expansion in economic activity and the absence of strong demand pressures.

The adjustment to the OPR is a pre-emptive measure to secure the improving growth trajectory amid price stability. At this current level of the OPR, the MPC considers the stance of monetary policy to be appropriate in sustaining economic growth with price stability.

(Source: Extracted from BNM 'Monetary Policy Statement' press release, 22 Jan 2020)

Monetary and financial developments

Ringgit currency

Performance of domestic fnancial markets during the quarter was mixed, largely reflecting shifts in investor sentiments and risk appetites amid a confluence of external factors. Despite global monetary easing, worsening trade tensions and concerns on the global growth outlook led to continued heightened risk aversion among fnancial market investors.

As a result, the US dollar continued to broadly strengthen against other currencies, partly driven by investors’ sustained demand for safe haven assets. Consequently, the ringgit depreciated by 1.1% against the US dollar in the third quarter, in line with regional currencies.

Domestic bond

The domestic equity and bond markets experienced diverging performances arising from these global developments. In particular, the FBM KLCI declined by 5.3% to close at 1,584 points at end- September (end-June: 1,672 points), while the 3-year, 5-year, and 10-year MGS yields declined by 19.3, 19.7 and 29.5 basis points, respectively. The weaker domestic equity market performance was in with the regional trend, as the heightened global riskline aversion weighed down on most emerging market equity indices. However, domestic bond yields trended downwards driven by non-resident into the domestic bond market as heightened globalinflows risk aversion led to a shift in preference towards the holding of safer fnancial assets, such as sovereign bonds. The lower yields were also driven by expectations of synchronised global monetary policy easing. In addition to this, the decision to retain Malaysia in the FTSE Russell World Government Bond Index (WGBI) bolstered bond market sentiments at the end of the quarter.

Liquidity condition

The level of surplus liquidity placed with the Bank remained relatively stable, reflecting the marginal net inflows during the quarter. At the institutional level, most banks continued to maintain surplus liquidity positions with the Bank.

The reduction in the Statutory Reserve Requirement (SRR) Ratio from 3.50% to 3.00% effective 16 November 2019 will result in a broad-based release of liquidity into the banking system. This will to support the efcient functioning of the domestic continue fnancial markets and facilitate effective liquidity management by the banking institutions.

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

The Group Prospect

Business review for 2019

The Group registered a profit before taxation and zakat of RM897.43 million for 2019 as compared to profit before taxation and zakat of RM853.57 million in prior year. Gross loans, financing and advances for the Group as at 31 December 2019 stood at RM35.86 billion (2018: RM35.17 billion) whilst total deposits from customers and placements of banks and other financial institutions stood at RM35.89 billion (2018: RM32.79 billion).

The Group continued its focus to grow Corporate financing during the year, including expanding its trade finance portfolio, and strengthening its capital with the issuance of Tier-2 Sukuk Wakalah in December 2019.

The Group was also active in the treasury segment, achieving a higher treasury income and increased investment in securities during the year.

Overall, the Group financial result for 2019 is satisfactory.

Outlook for 2020

The Islamic industry in Malaysia has advanced rapidly over the years, with a significant proportion of loans and financing in the country being Islamic financing. Islamic banks offer various competitive and innovative products, complementing solutions offered by conventional banks. While the growth is seen as significant in the industry, it is also important that Islamic financing delivers a positive and sustainable impact on the economy and community.

The Group will continue its focus to expand the corporate business, to reach the desired corporate retail-portfolio mix. The Group is looking forward to expand its products and services which include trade finance, wealth management and mobile banking to cater for various segments of our customers and depositors.

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