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Quarterly Report For The First Quarter Ended 31 March 2017

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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 2016.

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 2016.

Performance Review

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

Group revenue for the 3 months ended 31 March 2017 of RM811.204 million decreased by RM1.422 million or 0.2% as compared to the previous year corresponding period revenue of RM812.626 million. The decrease was mainly due to lower financing income from retail segment and lower income from investments in liquid assets. The Group cost to income ratio improved from the previous year to stand at 19.7%.

Group profit before tax for the financial period ended 31 March 2017 of RM126.771 million increased by RM87.671 million or 224.2% as compared to the previous year corresponding period profit before tax of RM39.100 million. The increase was mainly due to higher net operating income and lower 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 4.5%in the fourth quarter of 2016 (3Q 2016: 4.3%). Private sector expenditure remained the key driver of growth and contributed towards the continued expansion in domestic demand. However, public sector spending declined and partly offset the sustained growth in private sector activity. As a result, growth in domestic demand moderated. On the external front, net exports contributed positively to growth as real exports expanded at a faster rate than real imports. On a quarter-on-quarter seasonally adjusted basis, the economy recorded a sustained growth of 1.4% (3Q 2016: 1.4%).

Domestic demand grew by 3.3% in the fourth quarter of the year (3Q 2016: 4.6%), as the sustained growth in private sector expenditure was partly offset by the contraction in public sector expenditure. Private consumption expanded by 6.2% (3Q 2016: 6.4%), supported by continued wage and employment growth. Private investment registered a growth of 4.9% (3Q 2016: 4.7%), following continued capital spending in the services and manufacturing sectors. Businesses remained cautious in undertaking capacity expansion given headwinds from both external and domestic fronts.

In the fourth quarter, the Federal Government recorded a fiscal deficit of 1.3% of GDP (3Q2016: -0.6% of GDP), due to higher growth in revenue and a decline in total expenditure. Revenue increased by 6.8% on an annual basis (3Q 2016: 0.1%) driven by higher collections of Goods and Services Tax (GST). Operating expenditure declined by 13.0% on an annual basis (3Q 2016: -3.0%) due mainly to lower expenditure on supplies and services, and subsidies. Development expenditure similarly recorded a decline on an annual basis. The bulk of the expenditure during the quarter was disbursed primarily to the health sector, and agriculture and rural development. For the year as a whole, the Federal Government achieved a fiscal deficit target of 3.1% of GDP (2015: 3.2% of GDP). Total outstanding debt of the Federal Government stood at RM648.5 billion or 52.7% of GDP as at end-2016.

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

Banking system remains strong

In the fourth quarter of 2016, capitalization in the banking system remained stable with sustained asset quality. As at end-December 2016, the common equity tier 1 capital ratio, tier 1 capital ratio and the total capital ratio stood at 13.1%, 14.0% and 16.5%, respectively (end- September 2016: 13.3%; 14.2%; 16.7%). Loan loss coverage ratio stood at 90.2% while net impaired loans ratio remained low at 1.2% of net total loans (end-September 2016: 89.4%; 1.3%), reflecting sufficient buffers to absorb potential credit losses held by banks.

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

Brief Overview on Monetary and Financial Developments

In the fourth quarter of 2016, total gross financing raised by the private sector through the banking system, development financial institutions (DFIs), and the capital market amounted to RM316.2 billion (3Q 2016:RM293.8 billion). On a net basis, the growth of outstanding banking system loans, DFIs, and corporate bonds moderated to 5.5% in the fourth quarter (3Q 2016: 6.5%), reflecting mainly the moderation in the growth of net outstanding corporate bonds amid higher growth of loans extended by the banking system and development financial institutions (DFIs) during the quarter. The moderation in the growth of outstanding corporate bonds was mainly due to the higher base recorded in December 2015 given large one-off issuances by a few companies.

Net lending to businesses by the banking system and DFIs expanded by RM21.8 billion during the quarter (3Q 2016: RM7.8 billion). On an annual basis, outstanding business loans extended by the banking system and DFIs also grew strongly at 4.8% (3Q 2016: 2%). In addition, the amount of loans disbursed to businesses increased during the quarter with a higher level of credit extended mainly to the finance, insurance, and business services; transport, storage and communication and real estate sectors. Financing provided to SMEs also remained high, with outstanding SME loans recording an annual growth rate of 9% in 4Q 2016 (3Q 2016: 8.2%).

Net financing to the household sector by the banking system and DFIs expanded by RM16.1 billion during the quarter (3Q2016: RM12.1 billion). On an annual basis, the growth in outstanding household loans extended by the banking system and DFIs moderated to 5.5% in 4Q 2016 (3Q 2016:5.8%), reflecting mainly the moderation in loans for the purchase of passenger cars and the purchase of residential property. Borrowers with the capacity to service their loans continued to have access to financing during the quarter.

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

Group Prospect

The Group will focus on continued expansion of corporate business segment as it has shown positive contribution in 1st 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.