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Quarterly Report For The Second Quarter Ended 30 June 2017

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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 2016.

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 2016.

Performance Review

Current Year-to-Date vs Previous Year-to-Date
Income Statement

Group revenue for the 6 months ended 30 June 2017 of RM1.625 billion is at par with the revenue recorded for the previous year corresponding period. Group profit before tax for the financial period ended 30 June 2017 of RM242.399 million increased by RM128.580 million or 113.0% as compared to the previous year corresponding period profit before tax of RM113.819 million. The increase was mainly due to higher net operating income and lower allowances for impairment losses on loans, advances and financing. Net profit attributable to ordinary equity holders grew by RM94.564 million or 96.65% over the same period to RM192.408 million.

The Group cost to income ratio improved from the previous year corresponding period standing of 23.5% to currently stand at 21.4%. Total personnel expenses for the financial period ended 30 June 2017 of RM78.17 million were higher by RM2.52 million or 3.33% as compared to the previous year corresponding period mainly due to higher wages and salaries expenses as total number of staff increased from 1,523 to 1,576. Finance costs for the financial period ended 30 June 2017 of RM119.39 million were lower by RM9.68 million or 7.50% as compared to the previous year corresponding period mainly due to lower cost of deposits.

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 Group financing and loan loss coverage ratio increased to 113.14% for the financial period ended 30 June 2017 from 97.89% recorded over the same period last year.

The Group's gross loans and financing grew by RM774.186 million or 2.19% to RM36.058 billion as at 30 June 2017 as compared to RM35.285 billion as at 31 December 2016. This was mainly driven by growth in corporate loans and financing, partially set off by contraction in the retail segment. Fair value of financial investments available-for-sale increased by RM575.542 million as compared to 31 December 2016 position due to improved yields from favourable market sentiments.

Total deposits from customers increased by RM1.709 billion or 5.58% to stand at RM32.320 billion as at 30 June 2017.

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

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

Current Quarter vs Previous Year Corresponding Quarter

The Group registered a profit before tax of RM115.628 million, an improvement of RM40.909 million of 54.75% compared to the previous year corresponding quarter. The improved profit before tax was mainly due to higher operating profit and lower allowances for impairment losses on loans, advances and financing. Net profit attributable to ordinary equity holders grew by RM28.075 million or 44.56% over the same period to RM91.084 million.

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

Personal financing – The gross income from personal financing in the current quarter 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 quarter was higher compared to the previous year corresponding quarter due to the continued growth of corporate loans and financing assets base.

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

Auto financing – The gross income from auto financing in the current quarter was lower compared to the previous year corresponding quarter due to lower disbursements and decreasing portfolio base.

Prospects

Brief Overview and Outlook of the Malaysian Economy

The Malaysian economy recorded a higher growth of 5.6% in the first quarter of 2017 (4Q 2016: 4.5%). Private sector activity was higher and remained as the main driver of growth. Growth was further lifted by higher exports, as increased demand for manufactured products led to a strong growth in real exports (9.8%; 4Q 2016: 2.2%). Real imports also increased at a faster rate of 12.9% (4Q 2016: 1.6%) on account of higher growth of capital and intermediate goods. On a quarter-on-quarter seasonally-adjusted basis, the economy recorded a growth of 1.8% (4Q 2016: 1.3%).

Domestic demand growth increased to 7.7% in the first quarter of the year (4Q 2016: 3.2%), supported by continued expansion in private sector expenditure (8.2%; 4Q 2016: 5.9%) and the turnaround in public sector expenditure. Private consumption grew by 6.6% (4Q 2016: 6.1%). Household spending remained supported by continued expansion in employment and wage growth. The implementation of selected Government measures, including the higher amount of Bantuan Rakyat 1Malaysia cash transfers, also provided additional impetus to household spending.

Public consumption recorded a stronger growth of 7.5% (4Q 2016: -4.2%) attributed to higher spending on both emoluments and supplies and services. Private investment grew at a robust pace of 12.9% (4Q 2016: 4.9%), following continued capital spending in the services and manufacturing sectors. Investments in machinery and equipment were higher during the quarter, supported by the implementation of several large-scale projects in the manufacturing sector.

(Source: Extracted from the latest BNM Quarterly Bulletin - Developments in the Malaysian Economy, First Quarter 2017)

Banking system remains strong

The banking system as at end-March 2017 maintained strong capitalisation with the common equity capital ratio, tier 1 capital ratio and total capital ratio stood at 13.1%, 13.9% and 17%, respectively, remaining well above the current minimum regulatory level of 4.5%, 6% and 8%. The banking system deposits rose 3.2% to RM1,722.8 billion (end-March 2016: -0.9%; RM1,668.7 billion). Meanwhile, the level of net impaired loans was sustained at 1.2% of net total loans and loan loss coverage ratio stood at 89.1% (end-March 2016: 1.2%; 94.3%).

(Source: Extracted from the latest Quarterly Update on the Malaysian Economy – First Quarter 2017, Ministry of Finance)

Overall liquidity conditions remained sufficient for financial intermediation

In the banking system, liquidity conditions remained sufficient at both the institutional and system-wide levels. The level of surplus liquidity placed with BNM moderated, reflecting continued portfolio outflows during the quarter, which did not lead to pressures in the interbank market. At the institutional level, most banks continued to maintain surplus liquidity positions.

The growth of net financing increased to 6.8% in 1Q 2017 (4Q 2016: 5.5%) driven by both the growth in loans extended by the banking system and development financial institutions (DFIs) (1Q 2017: 6.0%; 4Q 2016: 5.3%), and the growth of net outstanding issuances of corporate bonds (1Q 2017: 9.3%; 4Q 2016: 6.1%).

Given healthy supply conditions with continued loan disbursements to all segments of borrowers, higher financing activity reflected the improved demand conditions during the quarter. In particular, growth of outstanding business loans increased to 7.1% (4Q 2016: 4.8%), reflecting improvement in both SMEs and other businesses during the quarter. The growth of SME loans increased (1Q 2017: 9.2%; 4Q 2016: 9.0%), with continued expansion in loans extended to the transport, storage and communication; manufacturing; wholesale and retail trade, and restaurants and hotels; and construction sectors. The growth of outstanding household loans continued to moderate to 5.3% (4Q 2016: 5.5%) with broad-based moderation across most loan types.

(Source: Extracted from the latest BNM, Quarterly Bulletin - Monetary and Financial Developments in the Malaysian Economy, First Quarter 2017))

Group Prospect

The Group will focus on continued expansion of corporate business segment as it has shown positive contribution in 2nd quarter 2017 flowing in from 2016, 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 to compete in the challenging environment. These activities include collection efforts, continued improvement in compliant operational workflows, efficient workflows, enhancing assets quality based on risk management and credit frameworks and improving data management with business analytics.

Barring any unforeseen circumstances, the Group expects its performance for 2017 to be satisfactory.