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Quarterly Report For The Third Quarter Ended 30 September 2016

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Condensed Consolidated Statement 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 2015.

Condensed 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 2015.

Performance Review

Current Year Period-to-Date vs Previous Year Period-to-Date

Group revenue for the 9 months ended 30 September 2016 of RM2.455 billion increased by RM230.980 million or 10.4% as compared to the previous year corresponding period revenue of RM2.224 billion. The increase was mainly due to higher income from investments in liquid assets and higher financing income from corporate segment. The Group cost to income ratio remained relatively consistent with the previous year to stand at 22.8%.

Group profit before tax for the financial period ended 30 September 2016 of RM187.535 million decreased by RM166.177 million or 47.0% as compared to the previous year profit before tax of RM353.712 million. The decrease was mainly due to higher allowances for impairment losses on loans, advances and financing with the continuation of the impairment program initiated by the Group in the 4th quarter of 2014.

The Group embarked on a "Closing the Gaps" exercise since 2010 to bridge its frameworks to be in line with banking standards and best practices. The impairment program, which is in line with the recommendation by Bank Negara Malaysia, is in addition to the existing impairment provision that is in compliance with current accounting standards.

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.

Mortgage loans and financing – The gross income from mortgage loans and financing was lower compared to the previous year corresponding period due to lower disbursements and decreasing portfolio base.

Auto finance loans and financing – The gross income from auto finance loans and financing was lower compared to the previous year corresponding period due to lower disbursements and decreasing portfolio base.

Prospects

Brief Overview and Outlook of the Malaysian Economy

The Malaysian economy expanded by 4.0% in the second quarter of 2016 (1Q 2016: 4.2%). Private sector expenditure remained the key driver of growth (6.1%; 1Q 2016: 4.5%), and contributed towards the continued expansion in domestic demand. However, growth was affected by the continued decline in net exports and a significant drawdown in stocks. While real exports registered a better performance (1.0%; 1Q 2016: -0.5%) due to higher demand for manufactured products, real imports increased at a faster rate of 2.0% (1Q 2016: 1.3%) on account of improvement in growth of capital and intermediate goods. As a result, net exports continued to register a negative growth during the quarter, albeit at a slower pace of -7.0% (1Q 2016: -12.4%). The drawdown in stocks was attributed to lower production in agriculture and manufactured products. On a quarter-on-quarter seasonally-adjusted basis, the economy recorded a growth of 0.7% (1Q 2016: 1.0%).

Domestic demand grew by 6.3% in the second quarter of the year (1Q 2016: 3.6%), with private sector expenditure expanding at a stronger pace of 6.1% (1Q 2016: 4.5%). Private consumption growth expanded by 6.3% (1Q 2016: 5.3%), supported by continued wage and employment growth, as well as the additional disposable income from Government measures. Private investment registered a higher growth of 5.6% in the second quarter (1Q 2016: 2.2%), underpinned mainly by continued capital spending in the services and manufacturing sectors, amid some improvements in business confidence.

During the second quarter of 2016, Federal Government expenditure increased by 5.8%, due primarily to higher development expenditure. Development expenditure increased by 43.9% on an annual basis (1Q 2016: 16.1%) and was mainly channeled towards the transportation and trade and industry sectors. Operating expenditure registered a slower annual growth rate of 0.5% (1Q 2016: 3.5%), reflecting the Government's expenditure rationalisation measures, as reflected by a marked decline in subsidies and grants and transfers. Revenue declined by 14.0% (1Q 2016: -5.3%), due mainly to lower individual income tax collection. Overall, the Federal Government recorded a lower deficit of 5.0% of GDP (1Q 2016: -6.1% of GDP) during the quarter. As at end-June 2016, total outstanding debt of the Federal Government amounted to RM655.7 billion or 53.4% of the estimated 2016 GDP.

(Source: Extracted from the latest BNM Quarterly Bulletin - Developments in the Malaysian Economy, Second Quarter 2016)

Banking system remains strong

The banking system remained strong on the back of firm capitalisation and sustained asset quality. As at end-June 2016, the common equity tier 1 capital ratio, tier 1 capital ratio and the total capital ratio stood at 12.9%, 13.9% and 16.4%, respectively (end-March 2016: 13%; 13.9%; 16.5%). Meanwhile, pre-tax profit in the second quarter of 2016 totaled RM12.9 billion (Q1 2016: RM7.7 billion), mainly driven by income from financing as well as trading and investment activities. The net impaired loans ratio remained low at 1.3% of net total loans (end-March 2016: 1.2%).

(Source: Extracted from the latest Quarterly Update on the Malaysian Economy - Second Quarter 2016, Ministry of Finance)

Brief Overview on Monetary and Financial Developments

In the second quarter, total gross financing raised by the private sector through the banking system, development financial institutions (DFIs), and the capital market amounted to RM292.1 billion (1Q 2016: RM290.8 billion). On a net basis, the growth of loans extended by the banking system, DFIs, and outstanding issuances of corporate bonds expanded by 6.9% as at end-June (end- March 2016: 7.5%).

Net lending to businesses by the banking system and DFIs increased by RM3.1 billion during the quarter (1Q 2016: -RM4.8 billion). On an annual basis, outstanding business loans grew at a slower pace of 3.8% as at end-June (end-March 2016: 4.9%) due to the stronger growth in loan repayments relative to disbursements. Although the growth in the level of loans disbursed by the banking system and DFIs to businesses slowed down to 0.1% on an annual basis, the level of loans disbursed to SMEs increased to RM66.4 billion during the quarter (2Q 2015: RM65.4 billion) with loans extended mainly to the construction, real estate, and agriculture sectors.

Net financing to the household sector expanded by RM12.4 billion during the quarter (1Q 2016: RM8.5 billion). On an annual basis, the growth of outstanding household loans moderated to 6.2% as at end-June (end-March 2016: 6.5%), reflecting mainly the moderation in outstanding loans for the purchase of non-residential property, purchase of passenger cars, and purchase of residential property.

(Source: Extracted from the latest BNM, Quarterly Bulletin - Monetary and Financial Developments in the Malaysian Economy, Second Quarter 2016)

Group Prospect

The operating environment for 2016 continued to be challenging. The Group focus on the expansion of corporate business segment continued to show positive contribution, in terms of growth in corporate portfolio assets and earnings. The Group will continue to strengthen, adapt and sustain its corporate and retail business activities including collection efforts to compete in the challenging environment. These activities include continued improvement in compliant operational workflows, enhancing assets quality based on risk management and credit frameworks.

Barring any unforeseen circumstances, the Group expects its performance for 2016 to remain satisfactory.