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Quarterly Report For The Financial Period Ended 30 June 2018

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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 30 June 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 30 June 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 and financing for the 2nd quarter 2018 ("2Q18") declined by 1.2% as compared to 2nd quarter 2017 ("2Q17") mainly due to the proposed sale of personal financing, property financing and mortgage in 4th quarter 2018 amounted to RM1.513 billion. The decline was offset by the increase in corporate loans and financing and increased the corporate retail mix to 25:75 from 2Q17 of 21:79. The increase was also due to consolidation of existing portfolio of MBSB Bank.

The performance of the respective operating business segments for the current period under review as compared to the previous year corresponding period is analysed as follows:

  • Personal financing – The gross income from personal financing in the current period was lower compared to the previous year corresponding period due to lower disbursements and decreasing portfolio base.
  • Corporate loans and financing – The gross income from corporate loans and financing in the current period was higher compared to the previous year corresponding period due to the continued growth of corporate loans and financing assets base. Corporate disbursements amounted to RM1.4 billion in 2Q18 representing 80.9% of the total quarter disbursement of RM1.7 billion.
  • Property financing and mortgage loans – The gross income from property financing was higher in the current period compared to the previous corresponding period due to growth in its financing assets base. This was partly set off by lower income from mortgage loans as its assets base decreases following conversion efforts from conventional mortgage to Islamic property financing.
  • Auto financing – The gross income from auto financing was lower compared to the previous year corresponding period due to decreasing portfolio base.
Current Year-to-Date vs Previous Year-to-Date
Income Statement
Variation of Results against Preceding Quarter
Income Statement

The Group profit before tax for 2Q18 increased by 8.0% compared to 2Q17 respectively. The increase was mainly due to lower charge of impairment allowances on loans and financing compared to 2Q17. The charge was attributed mainly by improvement of staging from both Stage 1 and Stage 2 under MFRS 9. The higher operating expenses was due to integration costs and amortisation of investments in system enhancements.

The Group profit before tax for 2Q18 decreased by 69.5% as compared to 1Q18. The increase was mainly due to higher operating expenses as stated in the preceding paragraph. Impairment allowances for 2Q 18 increased by RM278.6mil compared to 1Q 18 due to shifts in Stages of credit quality of Loans and Financing from Stage 1 to Stages 2 and 3 across both Retail and Corporate segments. Comparatively, a writeback of RM154.4mil for impairment allowances in 1Q 18 was predominantly due to improvements in impairment allowances for Corporate segment from Stage 2 to Stage 1. Overall, volatility of allowances is reflective of current exposures, collection trends and movements in forward looking macroeconomic variables within the MFRS9 compliant impairment model.

The Group cost to income ratio for 2Q18 of 30.4% increased from 2Q17 and 1Q18. The increase was mainly due to higher costs relating to the acquisition of MBSB Bank and higher wages and salaries expenses as total number of staff increased from 1,576 to 1,863 (including staff from MBSB Bank as a result of the acquisition).


Brief Overview and Outlook of the Malaysian Economy

The Malaysian economy expanded by 5.4% in the first quarter of 2018 (4Q 2017: 5.9%), driven by continued growth in private sector spending (5.2%; 4Q 2017: 7.4%) and strong growth in net exports (62.4%; 4Q 2017: 2.3%). On a quarter-on-quarter seasonally-adjusted basis, the economy grew by 1.4% (4Q 2017: 1.0%).

Domestic demand recorded a moderate growth of 4.1% (4Q 2017: 6.2%), due to lower growth of private sector expenditure (5.2%; 4Q 2017: 7.4%) and a marginal decline in public sector spending (- 0.1%; 4Q 2017: +3.4%). Private consumption registered a sustained growth of 6.9% (4Q 2017: 7.0%), supported by continued strength in wage and employment growth. Growth of private investment moderated to 0.5% (4Q 2017: 9.2%). Private investment was weighed down by lower capital spending in structures, particularly in residential and commercial properties, and machinery and equipment during the quarter. On a sectorial basis, private investment was supported mainly by the services sector, particularly the education and healthcare sub-sectors.

Public consumption growth was lower at 0.4% (4Q 2017: 6.8%) on account of lower expenditure on supplies and services. Public investment continued to decline in the first quarter (-1.0%; 4Q 2017: - 1.4%), attributed to the contraction in spending on fixed assets by public corporations. The lower capital spending by public corporations was due mainly to the near completion of a few large-scale projects.

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

OPR remained accommodative

In January 2018, the Monetary Policy Committee (MPC) normalised the degree of monetary accommodation by raising the Overnight Policy Rate (OPR) by 25 basis points to 3.25%. Malaysia’s strong growth performance in 2017 was expected to be sustained through 2018, amid more broad based, entrenched and synchronised global economic expansion. Headline inflation was expected to average lower in 2018, on expectations of a smaller effect from global cost factors, while a stronger ringgit exchange rate compared to 2017 would mitigate import costs. Importantly, the adjustment does not constitute a tightening of monetary conditions, but rather a normalisation of the degree of monetary accommodation that would contribute towards the sustainability of growth.

At the subsequent meetings in early March and May, the MPC kept the OPR unchanged, assessing that the degree of monetary accommodativeness after the normalisation to the degree in January was consistent with the policy stance to ensure that the domestic economy continues on a steady growth path amid lower inflation. In late March, the Bank had released its 2018 forecast for sustained growth of within 5.5% – 6.0%, and for lower headline inflation within the range of 2.0% – 3.0%.

(Source: Extracted from the latest BNM, Quarterly Bulletin - The Bank Policy Consideration, First Quarter 2018)

Overall liquidity conditions remained sufficient for financial intermediation

intermediationIn the banking system, liquidity conditions remained sufficient at both the institutional and system-wide levels. Reflecting the overall net capital inflows during the quarter, the level of surplus liquidity placed with the Bank also increased. At the institutional level, most banks continued to maintain surplus liquidity positions.

The growth of net financing was sustained at 6.3% in the first quarter of 2018 (4Q 2017: 6.4%), reflecting the steady growth of outstanding loans (1Q 2018: 3.9%; 4Q 2017: 3.8%). The growth of net outstanding issuances of corporate bonds continued at a double-digit rate during the quarter of 14.2% (4Q 2017: 15.4%). The growth of outstanding business loans was stable at 1.3% (4Q 2017: 1.3%), mainly supported by the real estate; construction; and finance, insurance and business services sectors. During the quarter, the growth and level of total business disbursements were higher relative to repayments, especially for businesses other than SMEs, reversing the trend from the previous quarter. Loan growth to SMEs moderated to 5.1% (4Q 2017: 5.3%) and the amount of loans disbursed sustained during the quarter (1Q 2018: RM75.9 billion; 4Q 2017: RM 78.4 billion). The growth of household loans increased to 5.2% during the period (4Q 2017: 4.9%), mainly driven by loans for the purchase of residential properties and securities.

(Source: Extracted from the latest BNM, Quarterly Bulletin - Monetary and Financial Developments in the Malaysian Economy, First Quarter 2018)

Development of the Islamic finance industry

The Islamic banking industry in Malaysia has advanced significantly over the years. From a market share of 5.3% in 2000, Islamic financing now accounts for 34.9% of total loans and financing. Islamic banks also offer a wide range of competitive and innovative products, complementing solutions offered by conventional banks.

While the growing depth and breadth of Islamic finance is an important barometer of progress, equally important is ensuring that Islamic finance delivers a positive and sustainable impact on the community, economy and environment. This vision is being realised through the adoption of value-based intermediation (VBI) by Islamic banks, which reinforces the intent of Shariah to promote good and prevent harm. VBI is being advanced to bring about a transformation in the business models and day-to-day conduct of Islamic banks. This was captured in a strategy paper that was developed in collaboration with the industry and issued by the Bank in July 2017.

As the VBI initiative progresses to its implementation phase, the immediate focus in 2018 will be on developing tools for operationalisation and performance measurement. Guidance on applications and approaches to VBI will be developed to help Islamic banks navigate implementation challenges associated with different business models and maturity of individual Islamic bank’s operations. In addition, a scorecard will be introduced to measure both financial and non-financial progress of Islamic banks towards VBI adoption. This is expected to yield changes in the financing portfolios of Islamic banks, with at least half of new business and personal financing channelled to purposes that are consistent with VBI by 2020. Going forward, further targets will be set upon implementation of the scorecard.

(Source: Chapter 4: Islamic Finance Development, Financial Stability and Payment Systems Report 2017, BNM)

Group Prospect

The acquisition of MBSB Bank Berhad (previously known as Asian Finance Bank Berhad) by MBSB was completed on 7 February 2018 and MBSB became a financial holding company. The first vesting of Shariah compliant assets and liabilities was carried out on 2 April 2018. Over the next three (3) years from 2 April 2018, MBSB will continue to maintain its conventional receivables and perform conversion of these receivables into Islamic receivables which will be subsequently vested to MBSB Bank. Any residual receivables that are not converted will either be redeemed by the account holders or dispose off to a third party.

The Group’s business, policies and operations have been realigned following the acquisition. Investments are being made to upgrade and 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 focus to expand the corporate business prior to the bank acquisition will continue, to reach the desire corporate retail portfolio mix. As a new Islamic banking group in the banking sector, 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 our customers and depositors.

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