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Quarterly Report For The Financial Period Ended 31 March 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 for the 1st quarter 2019 ("1Q19") increased by 0.7% as compared to 1st quarter 2018 ("1Q18") mainly due to growth in Corporate Financing. However, this growth is compensated by decline in Personal Financing portfolio.

Gross loans and financing for 1Q19 increased by 0.8% as compared to 4Q18 mainly due to bigger asset base for Corporate and Property/Mortgage Financing portfolio.

The performance of the respective portfolio for current year quarter as compared to the previous year corresponding quarter 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 with disbursement of RM1,034 mil in 1Q19, representing 56% of total disbursement for the Group during the quarter.
  • 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 1Q19 decreased by 71.7% and 27.0% compared to 1Q18 and 4Q18 respectively. The decrease was mainly due to higher ECL in the current quarter.

Comparing ECL of 1Q19 and 4Q18, the increase in ECL was mainly due to:

  • unfavourable forecast of forward looking macroeconomic factor applied to household sector portfolio which increased lifetime ECL for stage 2 impairment.
  • higher non-performing financing from household sector portfolio which increased ECL for stage 3 impairment.
  • higher ECL charge for Corporate customers in stage 1 and stage 2.

Comparing ECL of 1Q19 and 1Q18, the increase in ECL was due to 1Q18 recorded writeback as a result of staging improvement from stage 2 to stage 1.

The Group cost to income ratio for 1Q19 of 26.3% slightly improved compared to 26.7% (1Q18) and slightly regressed compared to 25.2% (4Q18). Nevertheless, the ratio remains well below the industry's average of 48.6%.

Contribution of Major Subsidiary to Group Financial Holding Company
Income Statement

MBSB Bank Berhad ("MBSBBank")is th ebiggest subsidiary in the Group. Total assets of MBSB Bank of RM46.86 bil account for 98.8% of total assets of the Group while the equity accounts for 63.0% of total equity of the Group.


Brief Overview and Outlook of the Malaysian Economy

The Malaysian economy grew by 4.7% in the fourth quarter of 2018 (3Q 2018: 4.4%), supported by continued expansion in domestic demand and a positive growth in net exports. Private sector expenditure remained the main driver of domestic demand, while a rebound in real exports of goods and services (+1.3%; 3Q 2018: -0.8%) contributed towards the positive growth of net exports. On a quarter-on-quarter seasonally-adjusted basis, the economy grew by 1.4% (3Q 2018: 1.6%). For 2018 as a whole, the economy expanded by 4.7% (2017: 5.9%).

Domestic demand expanded at a more moderate pace of 5.6% (3Q 2018: 6.9%) during the quarter. Growth was weighed down by a moderation in gross fixed capital formation.

Private consumption growth remained robust at 8.5% (3Q 2018: 9.0%), despite the frontloading of purchases during the tax holiday period in the previous quarter. Income and employment growth continued to drive household spending. Government measures to alleviate cost of living, such as special payments to civil servants and pensioners, also provided some support to consumer spending.

Privateinvestmentgrowthmoderatedto4.4%(3Q2018:6.9%),attributedtoslowercapitalspendingacrossmajoreconomicsectors.However,ongoingmulti-yearprojectsparticularlyinthemanufacturingsector continued to provide support to overall growth.

Private investment growth moderated to 4.4% (3Q 2018: 6.9%), attributed to slower capital spending across major economic sectors. However, ongoing multi-year projects particularly in the manufacturing sector continued to provide support to overall growth.

Public consumption expanded at a slower pace of 4.0% (3Q 2018: 5.2%), attributable to a more moderate growth in supplies and services. Public investment remained in contraction during the quarter (-4.9%; 3Q 2018: -5.5%), due mainly to a decline in capital spending by public corporations.

Gross fixed capital formation (GFCF) expanded marginally by 0.3% (3Q 2018: 3.2%), as private sector capital expenditure moderated amid a contraction in public sector investment. By type of assets, capital spending on structures expanded by 0.8% (3Q 2018: 1.8%), while investment in machinery and equipment declined (-1.5%; 3Q 2018: 5.9%).

(Source: Extracted from BNM Quarterly Bulletin - Developments in the Malaysian Economy, Fourth Quarter 2018)

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

On 7 May 2019, the Monetary Policy Committee (MPC) of Bank Negara Malaysia decided to reduce the Overnight Policy Rate (OPR) to 3.00 percent. The ceiling and floor rates of the corridor for the OPR are correspondingly reduced to 3.25 percent and 2.75 percent respectively.

The global economy continues to expand moderately. While growth outcomes for several major economies were better than expected during the first quarter, underlying economic conditions continue to suggest moderation going forward. Considerable downside risks to global growth remain, stemming from unresolved trade tensions and prolonged country-specific weaknesses in the major economies, further dampening global trade and investment activities. Although the tightening in global financial conditions has eased somewhat, heightened policy uncertainties could lead to sharp financial market adjustments, further weighing on the overall outlook.

For Malaysia, latest developments point towards moderate economic activity in the first quarter of 2019. Looking ahead, slowing global demand conditions and subdued growth of key trading partners will continue to weigh on the external sector. Domestically, stable labour market conditions and capacity expansion in key sectors will continue to drive household and capital spending. The baseline projection is for the Malaysian economy to grow within the projected range of 4.3% - 4.8%. However, there are downside risks to growth from heightened uncertainties in the global and domestic environment, trade tensions and extended weakness in commodity-related sectors.

Headline inflation increased to 0.2% in March 2019 (February: -0.4%), due mainly to the less negative transport inflation at -3.0% (February: -6.8%). Underlying inflation, as measured by core inflation, remained stable at 1.6% in March 2019. In the immediate term, inflation is expected to remain low mainly due to policy measures. These include the price ceiling on domestic retail fuel prices until mid2019 and the impact of the changes in consumption tax policy on headline inflation. For 2019 as a whole, average headline inflation is expected to be broadly stable compared to 2018. The trajectory of headline inflation will continue to be dependent on global oil prices. Underlying inflation is expected to remain stable, supported by the continued expansion in economic activity and in the absence of strong demand pressures.

The domestic financial markets have remained resilient, despite periods of volatility primarily due to global developments. While domestic monetary and financial conditions remain supportive of economic growth, there are some signs of tightening of financial conditions. The adjustment to the OPR is therefore intended to preserve the degree of monetary accommodativeness. This is consistent with the monetary policy stance of supporting a steady growth path amid price stability. The MPC will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation.

(Source: Extracted from the latest BNM 'Monetary Policy Statement' press release, 7 May 2019)

Monetary and financial developments

Ringgit currency

The ringgit appreciated marginally against the US dollar during the fourth quarter of 2018, despite cautious investor sentiments in global fnancial markets and non-resident portfolio outflows from the domestic bond and equity markets. These outflows were driven mainly by expectations for a faster pace of US monetary policy normalisation, prior to the US Federal Reserve’s (Fed) downward revision of its policy rate projection for 2019 in December 2018. In addition, uncertainties surrounding the moderating momentum of global growth and global trade also led to the unwinding of non-resident investments from regional fnancial markets, including Malaysia. However, these outflows were offset by resident inflows, mainly from goods and services, leading to the marginal appreciation of the ringgit. Going forward, lingering uncertainties on global trade and the trajectory of monetary policy normalisation in the US will continue to influence the performance of regional currencies, including the ringgit.

Domestic bond

Domestic bond yields increased only marginally during the quarter despite non-resident outflows due to continued support from domestic institutional investors. Non-resident outflows from the MGS market were driven mainly by expectations for a faster pace of US monetary policy normalisation. This led to international investors rebalancing their portfolio investments in EMEs towards US fnancial assets. During the period, the 3-year, 5-year and 10-year MGS yields increased by 2.8, 1.9 and 0.9 basis points, respectively

Liquidity condition

In the banking system, liquidity conditions remained sufficient at both the institutional and system-wide levels. The level of surplus liquidity placed with the Bank remained relatively stable during the quarter, reflecting a moderation of net outflows. 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, Fourth Quarter 2018)

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 Asia Finance Bank Berhad, now known as MBSB Bank Berhad in 2018, the investments of th eGroup 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.