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Quarterly Report For The Financial Period Ended 30 September 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 0.7% compared to 3Q18 and 2Q19 respectively. The increase 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, 3Q18 and previous quarter, 2Q19 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 - 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 profit before tax for 3Q19 increased by 15.0% and 33.6% compared to 3Q18 and 2Q19 respectively. The increase was mainly due to higher operating profit in the current quarter.

The Group profit after tax for 3Q19 increased by 39.5% and 60.2% compared to 3Q18 and 2Q19 respectively. The increase was contributed by higher profit before tax as above and also due to reversal of prior year overprovision of tax expenses, after the Group has finalised taxation for 2018 during 3Q19.

ECL increased compared to 3Q18 due to unfavourable macroeconomic forecast that impacted stage 1 retail segment.

In contrast, ECL decreased compared to 2Q19 as macroeconomic forecast was comparatively more favourable and improved the lifetime ECL for retail segment.

The Group cost to income ratio for 3Q19 of 22.6% slightly regressed compared to 32.2% and 31.3% for 3Q18 and 2Q19 respectively due to lower personnel costs. 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 49.79 bil account for 98.5% of total assets of the Group while the equity accounts for 63.4% of total Group equity.

Prospects

Brief Overview and Outlook of the Malaysian Economy

GDP registered a higher growth of 4.9% in the second quarter of 2019 (1Q 2019: 4.5%), supported by continued expansion in domestic demand. On a quarter-on-quarter seasonally-adjusted basis, the economy grew by 1.0% (1Q 2019: 1.1%).

Domestic demand expanded by 4.6% in the second quarter (1Q 2019: 4.4%), supported by firm household spending and slightly higher private investment.

Private consumption expanded by 7.8% (1Q 2019: 7.6%), supported by continued income growth and festive spending during the quarter. Selected Government measures, such as the special Aidilfitri assistance and Bantuan Sara Hidup, also provided some lift to overall household spending.

After a strong growth in the first quarter of 2019 (6.3%), public consumption expanded marginally by 0.3%, due to lower spending on supplies and services.

Growth in gross fixed capital formation (GFCF) registered a smaller contraction of 0.6% (1Q 2019: 3.5%), driven by a slightly higher private investment growth amid a continued decline in public investment. By type of assets, investments in structures turned around to register a positive growth of 1.2% (1Q 2019: -1.3%), reflecting some improvement in the residential property segment. Capital expenditure on machinery and equipment recorded a smaller decline of 4.2% (1Q 2019: -7.4%), following higher spending on information and communications technology (ICT).

Private investment expanded at a faster pace of 1.8% (1Q 2019: 0.4%), supported by increased capital spending in the services and manufacturing sectors. Nonetheless, uncertainty surrounding global trade tensions and prevailing weaknesses in the broad property segment continued to weigh on the investment growth performance. Public investment registered a smaller contraction of 9.0% (1Q 2019: -13.2%), mainly reflecting higher fixed asset spending by the Federal Government which partially offset the continued weak investment by public corporations.

(Source: Extracted from BNM Quarterly Bulletin - Developments in the Malaysian Economy, Second 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

During the first two months of the quarter, domestic financial markets were affected by cautious investor sentiments amid the moderating global growth outlook and escalations in global trade tensions. Domestically, potential reviews on Malaysia’s inclusion in the FTSE Russell World Government Bond Index (WGBI) also weighed down sentiments in the domestic bond market. As a result, nonresident portfolio outflows of RM5.1 billion led the ringgit to depreciate by 1.5% against the US dollar during the quarter. Despite the weak sentiments, domestic bond and equity markets remained supported by sustained demand from domestic institutional investors throughout the quarter

Domestic bond

Towards the end of the quarter, the performance of domestic bond and equity markets were lifted by a recovery in investor sentiments. In June, expectations of monetary policy easing by major central banks led to an improvement in global investor risk appetite, which spurred a recovery in non-resident portfolio inflows. As a result, the FBM KLCI increased by 1.7% in the second quarter to close at 1,672.1 points as at end-June (end-March 2019: 1,643.6 points) and the 3-year, 5-year and 10-year MGS yields declined by 8.5, 10.8 and 12.3 basis points, respectively.

Liquidity condition

The level of surplus liquidity placed with the Bank decreased, reflecting the net outflows during the quarter. Notwithstanding this, liquidity conditions remained sufficient in the banking system at both the system-wide and institutional levels, with most banks continuing to maintain surplus liquidity positions with the Bank.

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