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Quarterly Report For The Financial Period Ended 31 December 2020

Financials Archive

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Interim Financial Statements
Unaudited Statements Of Financial Position As At 31 December 2020

Balance Sheets

The interim financial statements should be read in conjunction with the audited financial statements for the year ended 31 December 2019.

Interim Financial Statements
Unaudited Statements Of Profit Or Loss And Other Comprehensive Income
For The Fourth Quarter Ended 31 December 2020

Income Statement

The interim financial statements should be read in conjunction with the audited financial statements for the year ended 31 December 2019.

Performance review of the Group

  1. Balance Sheet
    1. Loans, financing and advances
      Variation of Results against Preceding Year Corresponding Quarter
      Income Statement
      Variation of Results against Preceding Quarter
      Income Statement

      The Group gross loans, financing and advances decreased by 0.4% and 1.8% for 4Q20 compared to 4Q19 and 3Q20 respectively. The decrease was mainly due to write off on nonperforming retail loans and financing during the quarter.

      1. Personal financing – The gross amount for personal financing decreased as compared to 4Q19 and 3Q20 respectively mainly due to write off on non-performing accounts during the quarter.
      2. Corporate loans and financing – the gross balance decreased as repayment outpaced disbursement in the current quarter as compared to 4Q19 and 3Q20.
      3. Property financing and mortgage loans – The Group has been actively converting conventional mortgage to Islamic property financing during the year. In aggregate, the asset base has grown over the year and over the quarter.
      4. Auto financing – The gross balance continued to decrease as the Group focused on growing asset base of other portfolios.

    2. Financial investments
      Variation of results against preceding year corresponding quarter
      Income Statement
      Variation of Results against Preceding Quarter
      Income Statement

      The Group financial investments decreased by 4.5 % and 4.7% for 4Q20 compared to 4Q19 and 3Q20 respectively following sale of financial investments.

  2. Income statement
    Current Year Quarter vs Preceding Year Corresponding Quarter
    Income Statement
    Current Year Quarter vs Immediate Preceding Quarter
    Income Statement

    The Group recorded lower profit before tax for current quarter compared to 4Q19 and 3Q20 mainly due to higher allowance for impairment provided in the quarter. The higher impairment allowance is seen mainly from ECL on retail portfolio as delinquencies increased following end of the 6 months auto moratorium on 30 September 2020. As at 31 December 2020, in view of the unprecedented and ongoing pandemic, overlays amounting to approximately 7% of total ECL for loans, financing and advances have been applied.

    The cost to income ratio of the Group was lower as some expenditure were scaled down including commission charges.

    Contribution of major subsidiary of the Group
    Income Statement

    MBSB Bank Berhad ("MBSB Bank") is the biggest subsidiary in the Group. As at 4Q20 total assets of MBSB Bank of RM48.0bil account for 99.0% of total assets of the Group while the equity accounts for 69.4% of total Group equity.


Brief overview and outlook of the Malaysian economy - lower growth for first quarter of 2020

The Malaysian economy recorded a negative growth of 3.4% in the fourth quarter (3Q 2020: -2.6%), largely attributable to the imposition of the Conditional Movement Control Order (CMCO) on a number of states since mid-October. The restrictions on mobility, especially on inter-district and inter-state travel, weighed on economic activity. Nevertheless, the continued improvement in external demand provided support to growth. Consequently, except for manufacturing, all economic sectors continued to record negative growth. On the expenditure side, moderating private consumption and public investment activities weighed on domestic demand. On a quarter-onquarter seasonally-adjusted basis, the economy registered a decline of 0.3% (3Q 2020: +18.2%).

In terms of sectoral performance, all economic sectors, except manufacturing, registered negative growth in the fourth quarter

Domestic demand recorded a decline of 4.4% in the fourth quarter of 2020 (3Q 2020: -3.3%), mainly due to the subdued private consumption and public investment activities. Net exports grew by 12.4% (3Q 2020: 21.9%), with continued expansion in manufactured exports.

Private consumption contracted by 3.4% (3Q 2020:-2.1%). Household spending was subdued amid continued weaknesses in income and employment conditions during the quarter. Spending was also affected by tighter movement restrictions in selected states. Nevertheless, the decline in physical spending was partly mitigated by the continued acceleration in online spending. During the quarter, consumer expenditure also remained supported by various stimulus measures including the EPF iLestari withdrawals, the continued support to affected borrowers under the Targeted Repayment Assistance (TRA) and lower passenger car sales tax.

Meanwhile, public consumption continued to expand, albeit at a more moderate pace of 2.7% in the fourth quarter of 2020 (3Q 2020: 6.9%), supported by spending in emoluments.

Headline inflation, as measured by the annual percentage change in the Consumer Price Index (CPI), was slightly lower at -1.5% during the quarter (3Q 2020: -1.4%). This was mainly due to lower inflation for rental and communication services respectively as well as the larger annual decline in retail fuel prices. These were partly offset by higher inflation in other categories, in particular, transport services and food.

(Source: Extracted from BNM Quarterly Bulletin - Developments in the Malaysian Economy, Fourth Quarter 2020)

Overnight Policy Rate ("OPR") reduced to 1.75 percent

At its meeting today, the Monetary Policy Committee (MPC) of Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 1.75 percent.

The global economy continues to recover, led by improvements in manufacturing and export activity. However, the recent resurgences of COVID-19 cases and the subsequent containment measures have affected economic activity in several major economies. The expedited roll-out of mass vaccination programmes, together with ongoing policy support, are expected to lift global growth prospects going forward. Financial conditions also remain supportive. The overall outlook remains subject to downside risks, primarily if there is further resurgence of COVID-19 infections and delays in mass inoculation against COVID-19.

For Malaysia, the resurgence in COVID-19 cases and the introduction of targeted containment measures has affected the recovery momentum in the fourth quarter of 2020. As a result, growth for 2020 is expected to be near the lower end of the earlier forecasted range. For 2021, while near-term growth will be affected by the re-introduction of stricter containment measures, the impact will be less severe than that experienced in 2020. The growth trajectory is projected to improve from the second quarter onwards. The improvement will be driven by the recovery in global demand, turnaround in public and private sector expenditure amid continued support from policy measures, and higher production from existing and new manufacturing and mining facilities. The roll-out of vaccines in the coming months will also lift sentiments. Downside risks to the outlook remain, stemming mainly from ongoing uncertainties surrounding the dynamics of the pandemic and potential challenges that might affect the roll-out of vaccines both globally and domestically.

In line with earlier assessments, the average headline inflation is expected to be negative in 2020 due mainly to the substantially lower global oil prices. For 2021, headline inflation is projected to average higher, primarily due to higher global oil prices. Underlying inflation is expected to remain subdued amid continued spare capacity in the economy. The outlook, however, is subject to global oil and commodity price developments.

The MPC considers the stance of monetary policy to be appropriate and accommodative. Given the uncertainties surrounding the pandemic, the stance of monetary policy going forward will be determined by new data and information, and their implications on the overall outlook for inflation and domestic growth. The Bank remains committed to utilise its policy levers as appropriate to create enabling conditions for a sustainable economic recovery.

(Source: Extracted from BNM 'Monetary Policy Statement' press release, 20 January 2021)

Monetary and financial developments

Improvement in domestic financial market conditions amid rising global risk appetite

Conditions in the domestic financial markets improved in the fourth quarter of 2020, as positive global developments buoyed investor sentiments. Of significance, investor risk appetite improved during the quarter amid positive developments on the approval and deployment of COVID-19 vaccines and greater clarity on US policy direction following the outcome of the US presidential election. As a result, the domestic financial markets experienced broad-based improvements across asset markets, in line with the regional trend. In in the fourth quarter of 2020, domestic financial markets experienced continued nonresident portfolio inflows, which led to an appreciation of the ringgit against the US dollar by 3.6% amid broad US dollar weakening. These inflows were mainly into the domestic bond market, which contributed to the decline of the 3-year, 5-year and 10-year MGS yields by 11.0, 13.4 and 1.0 basis points, respectively. While Fitch Ratings downgraded Malaysia’s sovereign rating to BBB+ in December 2020, the impact to the domestic bond market from this downgrade was muted.

Interest rates remained stable during the quarter

Nominal interest rates in the wholesale and retail markets were broadly stable throughout the quarter. The benchmark 3-month KLIBOR declined marginally by 3 basis points to 1.94% (3Q 2020: 1.97%). In the retail market, the weighted average base rate (BR) was unchanged at 2.43% (3Q 2020: 2.43%) while the weighted average lending rate (ALR) on outstanding loans decreased marginally to 3.99% (3Q 2020: 4.03%).

Real fixed deposit (FD) rates were also stable in the fourth quarter, given the steady headline inflation in December. In particular, the real 3-month and 12-month FD rates remained broadly unchanged at 3.00% (3Q 2020: 3.00%) and 3.20% (3Q 2020:3.20%), respectively.

Banking system liquidity remained sufficient to facilitate financial intermediation

Banking system liquidity remained sufficient at both the institutional and system-wide levels to facilitate financial intermediation activity. Reflecting the net inflows during the quarter, the level of surplus liquidity placed with the Bank increased marginally by RM1.3 billion. At the institutional level, all banks maintained surplus liquidity positions with the Bank as at end-December 2020.

Credit continued to expand to meet the financing needs of the economy

In fourth quarter of 2020, net financing expanded by 4.4% on an annual basis (3Q 2020: 4.6%), supported by the continued expansion of outstanding corporate bonds and loans. Outstanding corporate bond growth increased during the quarter (6.5%; 3Q 2020: 4.3%) due mainly to issuances from Government-related entities and financial institutions.

(Source: Extracted from BNM Quarterly Bulletin 'Monetary and Financial Developments' Fourth Quarter 2020)

The Group's prospects

The Group registered a profit before taxation and zakat of RM428 million for 2020 as compared to profit before taxation and zakat of RM897 million in prior year. Gross loans, financing and advances for the Group as at 31 December 2020 had reduced to RM35,728 million (2019: RM35,864 million) whilst total deposits from customers and placements of banks and other financial institutions had reduced to RM33,883 million (2019: RM35,894 million).

For year 2020, the Group's performance is affected by the COVID-19 outbreak in the country and the impact of automatic financing moratorium granted to eligible customers. The Group recognised RM505 million modification loss arising from the financing moratorium.

The Group will continue to focus its businesses in selected sustainable sectors and drive greater growth and adoption of emerging technologies. Various new measures and extended moratorium following the prolonged COVID-19 pandemic is expected to impact profitability for the year. Constant monitoring of customer collections and risks are imperative to ensure sustained profits.