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Letter to Shareholders
It is an interesting period for the Islamic financial industry. On one hand there is greater acceptance of Islamic products and services. On the other, competition is intensifying as a number of conventional financial institutions are entering the market, along with new players. Within this scenario, BIMB Holdings Berhad (“BHB”) and our group of companies (“BHB Group” or “the Group”) continue to build on our strengths to chart impressive growth. The Group’s Profit Before Zakat and Tax (“PBZT”) hit a record high, supported by strong performances by our subsidiaries, which lived up to their status of being prime movers and innovators in the Islamic banking and takaful space. During the year, they introduced more firsts in the Malaysian market, further enhancing their customer delivery and strengthening their reputation. As they spread their brands, we are making our presence felt more strongly in the market.
Our activities in 2012 have borne positive results, and it gives me great pleasure to share the Group’s financial and operational performance for the financial year ended 31 December 2012.
The year 2012 was challenging for economies the world over, as countries in the Eurozone continued to grapple with the endemic sovereign debt crisis, and the US faced mounting pressure from its fiscal cliff. Even BRIC countries (Brazil, Russia, India and China) experienced significant moderation in Gross Domestic Product (GDP) growth as a result of the global slowdown.
In Malaysia, trade was impacted by sluggish external demand and slow global conditions. However, domestic consumption remained robust, buoyed by initiatives under the Government Transformation Programme (“GTP”) and Economic Transformation Programme (“ETP”). These, coupled with the government-established economic corridors, resulted in investment growth of 21.8%, the strongest seen in 12 years.
BHB has stood to benefit from the bullish local environment that includes a vibrant Islamic finance industry. Although the presence of arguably larger conventional players has increased competition and pressure on net income margins, BHB continued to perform commendably. Our strategy for success has been simple: to focus on building our fundamental strengths while leveraging on our established brand names to further grow our business
BHB posted a record PBZT of RM717.4 million for the financial year 2012, which is an increase of RM128.6 million or 21.8% over the RM588.9 million achieved in 2011. This growth was driven mainly by higher net income on healthy financing and deposits from customers, coupled with improved asset quality. Our consolidated net profit for the year grew by RM75.2 million or 17.8% to RM497.6 million compared to RM422.4 million in 2011.
As a result, the Group’s net profit attributable to the shareholders also trended upwards by RM40.1 million or 18.9% to RM252.3 million from RM212.2 million in 2011.
I am pleased to announce the Group’s exceptional growth in net financing of RM5.3 billion, or 37.7% which outperformed the domestic banking industry’s growth of 10.4%. Our growth in net financing in 2012 also outpaced BHB’s RM2.3 billion net financing growth achieved in 2011. This positive trend will ensure the sustainability of our future earnings.
Moreover, efforts to continuously improve our asset quality bore fruit as our gross impaired financing ratio as at end 2012 trended downwards to 1.55% from 2.61% at end December 2011. All of this was achieved while maintaining a healthy Risk Weighted Capital Ratio (RWCR) of 14.0% as at 31 December 2012.
As part of our value creation to shareholders, we paid out a total of RM74.7 million, or 52.8% of our net profit for the financial year under review, in the form of two interim dividends of 3.5% each. These were paid on 31 October and 27 December 2012 respectively. In addition, the Board is also proposing for a final single tier dividend of 5% for each ordinary share held at our forthcoming Annual General Meeting.
2012 marked the completion of Bank Islam Malaysia Berhad’s (“Bank Islam” or “the Bank”) three-year Sustainable Growth Plan, which proved to be highly successful. For each year under this plan, the Bank has produced outstanding financial results, creating new records and then bettering them. Its profit for the year under review has been the Bank’s highest in its 29-year history. This can be partly attributed to a key component of the Sustainable Growth Plan, which was to reshape the Bank’s portfolio so as to create the right balance between the retail and non-retail business, secured and unsecured assets, and fixed and floating rate financing.
Bank Islam Group reported a PBZT of RM597.4 million, marking a 21.3% increase from RM492.5 million achieved in 2011. This was mainly due to financing growth and revenue from non-fund based income, as well as healthy asset quality.
The Bank’s net financing grew by RM5.3 billion to reach RM19.5 billion, which resulted in a 23.4% increase in fund based income from financing of RM215.4 million. Income from securities, both held-to-maturity and available-for-sale, also increased by RM84.0 million or 19.3%, while non-fund based income grew by 14.2% or RM33.5 million, mainly from fees, commissions and foreign exchange transactions.
Customer deposits recorded a year-on-year (YoY) growth of 15.1% or RM4.3 billion to reach RM32.6 billion as at end December 2012. Similarly, the low cost Current and Savings Accounts (“CASA”) also increased by RM1.1 billion or 9.3%. The CASA ratio as at end 2012 stood at 41.2%, well above the Islamic banking industry ratio of 26.9%. The Bank’s impaired financing ratio continued to improve, with the gross impaired financing ratio falling from 2.61% to 1.55%, and net impaired financing ratio improving from -0.17% to -0.67% as at end 2011 and end 2012 respectively. These were better than the Islamic banking industry gross and net impaired ratios of 1.7% and -0.3% respectively as at end December 2012.
Bank Islam’s key performance ratios as at end of 2012 also compared favourably against the industry. The Bank achieved a Return on Equity (ROE) of 20.21% against the industry’s 19.6%, and a Return on Asset (ROA) of 1.72% against the industry average of 1.4%.
During the year, Bank Islam focused on two major strategies - to capitalise on its inherent strengths as a leading retail Islamic bank with more than 5 million customers and to grow its non-retail business thus creating more sources of revenue generation.
Towards achieving the first objective, the Bank introduced a number of new products to cater for the different needs of its customers. This began in January with the introduction of floating rates for personal financing, making Bank Islam the first Islamic bank in Malaysia to offer this innovative concept. The service has proven very popular as it allows for additional savings due to lower monthly payments, hence lower total payments than typical personal financing with fixed rates. Additionally, customers can opt for either a fixed or floating rate financing while their monthly payment commitment remains fixed. As of year-end, the Bank had disbursed RM3 billion in floating rate personal financing.
Another pioneering innovation was the University Debit Card-I (UniDebit), an exclusive multipurpose, all-in-one card designed for the students and staff of Universiti Malaysia Kelantan (UMK). The card, the first of its kind developed for a public university in Malaysia, is essentially a Bank Islam Visa Debit Card-i which comes with an additional chip that enables it to serve as an access card, library card and university ID card all rolled into one. The card debuted on 31 October 2012.
Catering to customers’ investment needs, the Bank introduced two attractive products during the year. On 4 June 2012, it launched the Islamic Dual Currency Investment-i (“DCI-i”), a fixed deposit product linked to the performance of a pair of foreign currencies based on the concept of Wakalah-lil-Istithmar (an agency contract for investment) that meets both local and international Shariah standards. With DCI-i, savers can expect to earn higher returns than they would from regular foreign currency deposits. This was followed by the launch of a money market fund by BIMB Investment Management Berhad (“BIMB Invest”), a wholly-owned subsidiary of Bank Islam, on 13 September 2012.
In addition to introducing new products, Bank Islam also initiated a number of campaigns to promote existing programmes and services. Most notably, from 19 September 2012 to 30 November 2012, it ran the Al-Awfar Million Ringgit Campaign, with the aim of attracting new subscribers to the Al-Awfar savings and investment account, and to encourage existing customers to increase their savings under the account. Each RM1,000 deposit into an Al-Awfar account entitled a customer to one entry in a lucky draw in which the top prize was a million ringgit.
The Spend and Win Campaign, meanwhile, rewarded users of the Bank Islam Mastercard/Visa Card who spent a minimum of RM50 on their cards during the six-month period from 1 January 2012 to 30 June 2012 with the opportunity to win attractive prizes that included two BMW 320i M Sport and three Proton Inspira 1.8 CVT cars.
Having established its credentials in the Initial Public Offerings (IPO) scene in 2011, Bank Islam was appointed by an integrated electric power technology company, PESTECH International Berhad (“PESTECH”), to be the principal adviser, sole underwriter and placement agent for the company’s listing on the Main Market of Bursa Malaysia in 2011. PESTECH raised RM12.88 million via a public issue of 12,880,000 new ordinary shares of RM0.50 each at an issue price of RM1.00 per share. The floatation exercise also involved an offer for sale of 8,588,000 existing shares in the company.
During the year, the Bank also continued to strengthen its presence by expanding its delivery channels. It opened 5 new branches to bring its network to 127, installed 60 new self-service terminals making a total of 1,190 and launched 1 new Ar-Rahnu outlet bringing the total to 4. These consumer interfacing centres are supported by 8 banking centres and 4 currency exchange centres (“Bureaus de Change” or “BDC”).
A milestone was achieved when the Bandar Baru Perda branch of Bank Islam was relocated to the AEON Seberang Prai Shopping Centre in Penang, where it operates seven days a week. It is not only the first Bank Islam branch to open every day, but also the first to be located within a shopping mall, reflecting the Bank’s commitment to keeping up with the times and creating maximum convenience for its customers.
The performance of the Bank’s Management, and particularly the Managing Director, has been highly commendable and has done the Group proud by winning a number of notable awards. These included the Best Project Financing of the Year in Southeast Asia by Alpha Southeast Asia; the Best Islamic Bank in Malaysia by Islamic Finance News Best Banks Poll 2012; the Platinum Trusted Brand Award 2012 (Islamic Financial Services) by Reader’s Digest and the BrandLaureate Awards 2011-2012 for Best Brand in Islamic Banking by the Asia Pacific Brands Foundation.
Over the past few years, Syarikat Takaful Malaysia Berhad (“Takaful Malaysia” or “the Company”) has been on a transformation journey to establish a stronger market presence by growing its assets and enhancing its revenue and profit. The Company’s financial results for the year 2012 would indicate success of this initiative. Takaful Malaysia’s assets grew 9% to end the year at RM6.4 billion while its PBZT increased by 23.8% from RM101.4 million in 2011 to RM125.5 million. This was due mainly to higher surplus transfers as well as higher net income from wakalah fees.
Concerted efforts by the company to improve sales led to a 19.5% increase in operating revenue from RM1,345.5 million in the preceding year to RM1,607.5 million. This was contributed mainly by the Family Takaful business, which generated gross earned contributions of RM987.7 million compared to RM694.7 million in 2011. Also contributing to the 42.2% growth in gross earned contribution was the release of unearned contribution reserves arising from the change in reserving estimates for Group Family Takaful products.
Sales of General Takaful products also increased, with gross earned contribution growing to RM457.1 million from RM401.7 million in 2011.
The surplus transferred from Family Takaful recorded an increase of RM32.0 million to RM129.8 million in 2012 while the surplus transferred from General Takaful is lower by RM19.0 million as compared to RM85.5 million in 2011. The higher surplus transfer from Family Takaful was mainly due to better underwriting, investment results and release of unearned contribution reserves, while the lower figure reported by General Takaful can be explained by a shift to wakalah model products.
Despite growing competition in the Islamic insurance sector, Takaful Malaysia managed to grow its market share in both the Family Takaful and General Takaful businesses. It is a notable leader in the Family Takaful business, having captured about 40% of the market, and accounts for 20% of the combined Family and General Takaful market.
One of the biggest challenges faced in growing its business is the general public perception that Islamic insurance is a product only for Muslims. Takaful Malaysia has therefore taken upon itself to communicate details and benefits of takaful products to all customers. During the year, it embarked on the second phase of its educational “We Should Talk” campaign promoting its own unique 15% No Claim Rebate for all General Takaful and selected Family Takaful plans, an offer that is not made by any other existing insurance company in Malaysia.
The Company also launched its new investment-linked Takaful myGenLife, comprising the most comprehensive range of Shariahcompliant funds in Malaysia – myGrowth Fund, myDividend Fund, myEquity Index Fund, myBlue Chips Fund and myBalanced Fund. Takaful myGenLife also offers a wide range of supplementary benefits, including comprehensive medical coverage with one of the most competitive benefit limits in the country.
In addition to introducing innovative products, the year was marked by enhanced efforts at further strengthening Takaful Malaysia’s service delivery via an improved IT platform, an expanded agency force and the opening of new Takaful myCare Centres. Three new Takaful myCare Centres were opened in Putrajaya, Melaka and Sungai Petani, bringing the total number to 20 as at end 2012. All the older centres have been refurbished in line with the Company’s vision of becoming the Preferred Choice for Insurance.
On 23 March 2012, Takaful Malaysia became the first insurance company in Malaysia to implement the cutting-edge Document Management System (“DMS”). DMS, launched in 2011, involves a comprehensive IT overhaul which will take three years to complete. Following completion of the first two phases, the system went live in March 2012. The system streamlines operating procedures, increases productivity and aids in business expansion by integrating a data capturing solution and an enterprise content management solution for both individual and group family operations, covering the end-to-end process cycle.
Meanwhile, a highly successful Be myAgent (BMA) campaign was held to promote career and business opportunities with Takaful Malaysia, which led to the recruitment of 488 new agents, almost doubling the agency force by year end to 959. As part of its recruitment and retention drive, the Company is offering a financing scheme to selected and qualified new agents or agency leaders to provide their careers a head start.
In appreciation of its customers and the local communities that have continuously supported the Company’s vision and mission, Takaful Malaysia organised a series of Open Days during the months of June and July in six locations across Malaysia namely Shah Alam, Selangor; Bandar Perda, Penang; Kuantan, Pahang; Johor Bahru, Johor; Kota Kinabalu, Sabah; and Kuching, Sarawak. At these events, it provided free health screening and talks, and business opportunities sharing sessions.
Takaful Malaysia’s many successes in recent years have been due to an able and focused leadership. During the year, Group Managing Director of Takaful Malaysia, Dato’ Mohamed Hassan Md. Kamil did the Company and BHB proud by winning two prominent awards. The Asia Pacific Brands Foundation (APBF) presented him with The BrandLaureate Transformational Corporate Leader Brand Icon Leadership Award 2012 in recognition of his outstanding leadership in spearheading Takaful Malaysia’s growth. He was also presented the Jewels of Muslim World Award, which recognises individuals who have contributed to the development of the Muslim world economy.
During the year, various regulatory changes were introduced which liberalised the requirements for securities traders, encouraging a greater number of fresh talent to join the stockbroking industry. At the same time, the Capital Markets and Services Act (CMSA) 2012 introduced a new approval framework that will facilitate the offering of a broader array of capital market products to the advantage of issuers, intermediaries and investors.
BHB views these changes positively and intends to make the most of the more vibrant and liberal system to further grow our stockbroking business, which has been steadily gaining in strength over the years.
In 2012, BIMB Securities Sdn. Bhd. (“BIMB Securities”) increased its value of dealing by 39% as compared to 2011. This led to a 47% increase in brokerage income, and a 19% growth in total net income from the previous year.
Several technological innovations were deployed during the year. These included a Central Matching Facility (CMF), an auto settlement process between brokers and custodian banks which enhances the settlement process, thus improving BIMB Securities’ capability to manage more institutional settlements within a shorter time period. BIMB Securities also implemented its own Order Management System (OMS), in line with Bursa Malaysia directive for all Participating Organisations to install and maintain their own systems.
To further extend its customer reach, BIMB Securities launched the first fully Shariah-compliant online trading system, BISonline, which would benefit investors who prefer to trade directly and monitor their investments online.
Syarikat Al Ijarah Sdn Bhd is the Group’s leasing arm. For the financial year ending December 2012, it posted a PBZT of RM0.51 million, which was 6.3% higher than the annualised PBZT of RM0.48 million for the previous corresponding period. Its Profit After Zakat and Tax (PAZT), meanwhile, stood at RM0.30 million.
In pursuing our goal to be the premier Islamic financial services provider, the Board of Directors upholds the highest standards of corporate governance to enhance stakeholder value, maintain consumer trust and strengthen our competitive edge as an Islamic organisation. This involves strict observance of Islamic principles which ensure irreproachable business integrity, ethics and professionalism across the Group.
We continue to be guided by best practices in corporate governance as outlined in the Malaysian Code on Corporate Governance 2012 (MCCG 2012) , Bank Negara Malaysia’s Guidelines on Corporate Governance for Licensed Institutions, Bursa Malaysia Securities Berhad’s Main Market Listing Requirements, the Green Book on Enhancing Board Effectiveness by the Putrajaya Committee on GLC High Performance; and the Corporate Governance Guide (CG Guide) by Bursa Malaysia Securities Berhad.
To ensure our policies reflect best governance practices as they evolve, the former are continuously updated to reflect the changes made to the regulatory guidelines.
BHB believes firmly that all corporate organisations have a duty to uphold with integrity and respect towards their stakeholders, namely their clients, business partners, employees, shareholders and the community at large. As such, Corporate Responsibility (“CR”) is integral to the Group’s blueprint and is reflected in all organisational decisions and strategies. In addition to upholding the highest ethical conduct in accordance with the tenets of Islam, we undertake various initiatives to empower the disenfranchised and to contribute towards the preservation of our environment. The CR actions of BHB and our subsidiaries are described in greater detail in the Corporate Responsibility section of this annual report.
The year 2013 promises to be as challenging as 2012, as a result of prolonged global economic uncertainties which will impact economic growth, trade and performance. The World Trade Organisation has cut its global trade growth forecasts to 4.5% from 5.6%, while the International Monetary Fund downgraded its global growth forecasts to 3.6% from 3.9%.
Malaysia, however, will continue to enjoy robust domestic demand, boosted by the implementation of projects under the ETP. The construction industry, in particular, is expected to see double-digit growth with benefits flowing to all other industries. The Group’s exceptional 4Q 2012 results have set the tone for a positive financial year 2013, and we are optimistic of benefiting from the vibrant environment buttressed by healthy consumer spending, better net profit margins and stable monetary policies.
At the same time, competition within the Islamic financial services market will increase. In anticipation of such competition, BHB has been gearing up to capitalise on growing acceptance of Islamic finance by expanding our operations into the region. We are exploring neighbouring countries and are looking into their regulatory environments, as these need to be able to support the requirements of Islamic banking and finance.
We feel confident of the prospects of our Islamic banking sector for a number of reasons. The Securities Commission in June 2012 issued a directive for all companies seeking to be listed as Shariah-compliant to have not more than 33% of total assets funded by conventional debt. This will increase the demand for Islamic financing, a boon for Islamic financial institutions such as Bank Islam.
In addition, consumer sentiment in general is upbeat, providing the ideal scenario for Bank Islam to offer more innovative products to attract a wider base of customers. There is also huge potential to finance Entry Point Projects under the ETP. For the period January 2011 to end- September 2012, only RM21 billion out of RM212 billion in investment commitments under the ETP have been materialised, with the balance to flow through from 2013 onwards. A number of major projects can therefore be expected to come on-stream.
While expanding its financing portfolio, the Bank will remain mindful of the challenging economic conditions and the importance of securing quality assets. As such, the Bank will continue to enhance its existing operational controls and practices, while expanding its non-fund based income by enhancing key sources of fee-based income.
There will also be concerted efforts to further expand its delivery channels to meet customers’ expectations. In 2013, Bank Islam plans to reach out to another 6 locations via new branches, and open 5 more Ar-Rahnu outlets in Kubang Krian, Kelantan; Kuala Terengganu, Terengganu; Kuantan, Pahang; Ipoh, Perak and Alor Setar, Kedah. It is also targeting to open another 108 self-service terminals, set up another 2 BDCs and 3 Consumer Business Centres while 4 branches will be relocated and 7 refurbished.
Internally, Bank Islam has embarked on a newly introduced strategic programme to take the organisation closer to its vision of becoming a global leader in Islamic banking. Towards end 2012, the Bank launched its Hijrah to Excellence (H2E) Plan, focusing on 6 pillars of robust organic growth, service excellence, Shariah-led innovation, resource optimisation, being an employer of choice and regionalisation.
Takaful Malaysia is confident of the insurance market, and sees positive growth potential for takaful players as the penetration rate for takaful in the country is still low compared to conventional insurance, or when benchmarked against penetration rates in more mature markets. Competitively priced products, excellent customer service, operational efficiency and strong capital position will help in capturing the untapped market. Additionally, Government efforts to promote the takaful industry and strengthen the regulatory framework will contribute to growing acceptance and confidence among consumers and investors.
In addition to a generally conducive environment, Takaful Malaysia has an edge as it is one of the few takaful operators in the country that has the financial strength to satisfy the requirements of the Risk-Based Capital (RBC) Framework, which is to be implemented in 2014.
In terms of business expansion, the Company will continue to enhance its multi-distribution channels and focus more intently on its relationships with existing Islamic bank partners. It also plans to further penetrate the Company’s group employee benefits business and broaden its nonmotor general business, while improving sales with more attractive incentives and aggressive product innovation and development.
Takaful Malaysia has also set an ambitious target of further increasing its agency force by more than double to 2,500 agents. Not to be contented on quantity, it will also ensure top-quality professional agents by providing continuous agency development training.
The Government intends for Malaysia to be an international Islamic capital market centre and has embarked on various initiatives to achieve this end. Accordingly, the country’s Islamic capital market is projected to grow at an average of 10.6% per annum to reach RM3 trillion by end 2020. This is good news for our stockbroking arm, which for its part has been developing its systems and processes to be more customerfriendly.
Efforts are currently in place to automate the trade confirmation process for institutional clients, thus improving efficiencies. To further develop its retail broking, the BISonline trading system is expanding into the mobile platform to capture a broader audience. Under this e-broking platform, value added facilities such as e-Statements and e-Notifications will be made available to clients for more efficient investment monitoring. BIMB Securities has also stepped up its efforts to educate the public on the Islamic capital market via targeted programmes on TV and radio, while collaborating with Bursa Malaysia and local institutions of higher learning to reach out to young investors.
BHB continued to grow from strength to strength in 2012, and for this, I would like to thank all our stakeholders for their contributions. On behalf of our Board of Directors, I would like to acknowledge our customers for their loyalty and support, and our business partners who have worked with us in line with our goals and principles. I would also like to thank our shareholders for their invaluable contributions that have helped us achieve our business targets.
Our successes are also due to a conducive operating environment, and for this I would like to thank the Government and various regulatory agencies such as Bank Negara Malaysia, the Securities Commission and Bursa Malaysia for upholding a fair, transparent and vibrant financial ecosystem.
Finally, I would like to express my heartfelt gratitude to fellow members of the Board of BHB as well as of our subsidiary companies for their support and contributions, which has kept the Group along its path of steady and sustainable growth. In particular, my sincere appreciation to Tuan Syed Elias Abdul Rahman Alhabshi, our respected fellow Director who resigned from BHB’s Board on 1 July 2012, after serving two and a half years. BHB wishes him every success in his future endeavours.
The Management and all employees of the Group also deserve to be highly commended for their dedication and commitment, without which we would not be where we are today. BHB has been performing well over the last few years, but I believe we are capable of taking the organisation to much greater heights. It is therefore my fervent wish to see all of us continue to rally our exceptional human capital resources to further push boundaries, thus realising the Group and our subsidiaries’ true potential.
Thank you and Wassalam
TAN SRI SAMSUDIN BIN OSMAN