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Quarterly Report For The Fourth Quarter Ended 31 December 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 12 months ended 31 December 2016 of RM3.275 billion increased by RM224.697 million or 7.4% as compared to the previous year revenue of RM3.050 billion. The increase was mainly due to higher financing income from corporate segment and higher income from investments in liquid assets. The Group cost to income ratio improved from the previous year to stand at 20.8%.

Group profit before tax for the financial year ended 31 December 2016 of RM338.421 million decreased by RM16.604 million or 4.7% as compared to the previous year profit before tax of RM355.025 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 year under review as compared to the previous year is analysed as follows:

Personal financing – The gross income from personal financing in the current year was lower compared to the previous year due to lower disbursements and decreasing portfolio base.

Corporate loans and financing – The gross income from corporate loans and financing in the current year was higher compared to the previous year 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 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 due to lower disbursements and decreasing portfolio base.

Prospects

Brief Overview and Outlook of the Malaysian Economy

The Malaysian economy expanded by 4.3% during the quarter (2Q 2016: 4.0%), underpinned mainly by sustained growth in private sector activity (6.0%; 2Q 2016: 6.1%). Public sector spending, however, expanded at a slower pace. As a result, growth in domestic demand moderated as the improvement in private sector activity was outweighed by the slower growth in public expenditure. On the external front, net exports provided some impetus to growth as real imports of goods and services contracted at a faster pace (-2.3%; 2Q 2016: 2.0%) compared to real exports (-1.3%; 2Q 2016: 1.0%). On a quarter-on-quarter seasonallyadjusted basis, the economy recorded a growth of 1.5% (2Q 2016: 0.7%).

Domestic demand grew by 4.7% in the third quarter of the year (2Q 2016: 6.3%), as the sustained growth in private sector activity (6.0%; 2Q 2016: 6.1%) was more than offset by the slower expansion in public sector expenditure (0.3%; 2Q 2016: 6.9%). Private consumption expanded by 6.4% (2Q 2016: 6.3%), supported by continued wage and employment growth as well as the increase in minimum wage effective 1 July 2016. Private investment grew by 4.7% (2Q 2016: 5.6%), underpinned mainly by continued capital spending in the services and manufacturing sectors. Businesses remained cautious in expanding capacity, following headwinds from the external front, including the UK’s EU referendum and volatility in both financial and commodity markets.

The Federal Government recorded a lower fiscal deficit of 0.6% of GDP in the third quarter (2Q 2016: -5.0% of GDP), due to higher revenue collection and a decline in total expenditure. Revenue increased by 0.1% on an annual basis (2Q 2016: -14.0%), supported by higher tax collections. Operating expenditure declined by 3.0% on an annual basis (2Q 2016: +0.5%) due mainly to lower expenditures on subsidies and transfers to statutory bodies. Development expenditure also recorded a decline on an annual basis. The bulk of the expenditure during the quarter was disbursed primarily to the transportation and public amenities sectors. As at end- September 2016, total outstanding debt of the Federal Government amounted to RM643.6 billion or 52.2% of the estimated 2016 GDP. In October, the Government tabled the 2017 Budget outlining a lower fiscal deficit target of 3.0% of GDP for 2017, reflecting its continued commitment on fiscal consolidation.

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

Banking system remains strong

During the third quarter, capitalisation in the banking system remained strong with sustained asset quality. As at end-September 2016, the common equity tier 1 capital ratio, tier 1 capital ratio and the total capital ratio stood at 13.3%, 14.2% and 16.7%, respectively (end-June 2016: 13.4%; 14.3%; 16.8%). The net impaired loans ratio remained low at 1.3% of net total loans while loan loss coverage ratio stood at 89.4% (end-June 2016: 1.3%, 89.5%), reflecting sufficient buffers for potential credit losses held by banks.

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

Brief Overview on Monetary and Financial Developments

In the third quarter, total gross financing raised by the private sector through the banking system, development financial institutions (DFIs), and the capital market amounted to RM293.8 billion (2Q 2016: RM292.9 billion). On a net basis, the growth of loans extended by the banking system, DFIs, and outstanding issuances of corporate bonds expanded by 6.5% as at end-September (end- June 2016: 6.9%).

Net lending to businesses by the banking system and DFIs increased by RM7.8 billion during the quarter (2Q 2016: RM3.1 billion). On an annual basis, although outstanding business loans grew at a slower pace of 2.0% as at end-September (end-June 2016: 3.8%), the annual growth in outstanding SME loans was sustained at 8.2% (end-June 2016: 9.2%). Similarly, while the level of loans disbursed by the banking system and DFIs to overall businesses slowed down to RM187.1 billion during the quarter (2Q 2016: RM195.2 billion), the level of loans disbursed to SMEs remained strong at RM66.7 billion during the quarter (2Q 2016: RM66.4 billion) with loans extended mainly to the manufacturing; wholesale and retail trade, and restaurants and hotels; construction and education, health and other sectors.

Net financing to the household sector expanded by RM12.1 billion during the quarter (2Q 2016: RM12.4 billion). On an annual basis, the growth of outstanding household loans moderated to 5.8% as at end-September (end-June 2016: 6.2%), reflecting mainly the moderation in outstanding loans for the purchase of passenger cars; purchase of nonresidential property; purchase of residential property; and personal financing.

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

Group Prospect

The Group will focus on continued expansion of corporate business segment as it has shown positive contribution in 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 including collection efforts to compete in the challenging environment. These activities include continued improvement in compliant operational workflows, efficient workflows and enhancing assets quality based on risk management and credit frameworks.

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