Dear Shareholders,
The Board of Directors of BIMB Holdings Berhad (“BHB” or “the Group”) is pleased to report that BHB turned in a satisfactory performance even as we weathered the challenges of a difficult operating environment during the year under review. We are pleased to present the Annual Report and Financial Statements of BHB and the Group for the financial year ended 30 June 2009 (“FY2009”).
However, lower recoveries on financing led to a net allowance for losses in financing position amounting to RM123.29 million in FY2009 compared to a net recovery in fi nancing position of RM7.55 million in FY2008. This in turn weighed down on the Group’s profit before zakat and tax (“PBZT”) for the year, which resulted in a 21.20% decline in our PBZT to RM299.13 million (FY2008: RM379.62 million). On the whole, higher fund based activities and stable fee and commission income from our Banking operations helped to balance out a 12.90% decline in profi t from General Takaful and Family Takaful funds from our Takaful segment.
The year saw shareholders’ funds rising 26.58% to RM1.27 billion, while total assets expanded by 15.65% to RM31.90 billion. The Group’s net tangible assets per share grew 5.31% to 119 sen (FY2008: 113 sen), while we posted return on assets of 1.01% and return on equity of 9.98% respectively. On the banking front, the Group remains well-capitalised with a core capital ratio of 12.25% and a risk-weighted capital ratio (“RWCR”) of 13.87%.
Bank Islam Malaysia Berhad (“Bank Islam” or “the Bank”) made strong strides forward in the year under review, achieving all performance targets and concluding all five pillars of its three-year Turnaround Plan on schedule. The Banking Group’s total income grew 8.38% to RM1.27 billion in FY2009 from RM1.18 billion the year before. Despite adverse market conditions, Bank Islam garnered a satisfactory PBZT of RM235.87 million, although some 25.58% lower than the record PBZT of RM316.94 million recorded in FY2008. The lower PBZT for FY2009 was mainly due to financing recovery from a large customer account in the preceding year. The Banking Group’s financial performance was particularly encouraging as profit before allowances surged 20.80% to RM361.10 million on the back of net financing growth of 6.63% to RM9.66 billion and growth in deposits from customers of 21.44% to RM25.21 billion.
The Banking Group’s capitalisation and asset quality indicators remained strong in FY2009 with its RWCR at 13.87% (FY2008: 13.15%) and core capital ratio at 12.25% (FY2008: 11.27%). In April 2009, Bank Islam had initiated a rights issue of Islamic Convertible Redeemable Non-Cumulative Preference Shares (“ICRNCPS”) to raise additional Tier-1 capital amounting to RM540 million (“Bank Islam Capital Raising”). Following the completion of the Bank Islam Capital Raising in October 2009, the Banking Group’s RWCR is projected to strengthen further to 18.29%.
The Banking Group’s asset quality improved considerably as evidenced by the continuous decline in its net non-performing financing ratio to 4.90% (FY2008: 7.82%) and a rise in its financing loss coverage ratio to 80.81% (FY2008: 75.84%). Return on equity and return on assets (based on PBZT) declined to 16.55% (FY2008: 27.11%) and 0.92% (FY2008: 1.50%) respectively, while its cost-to-income ratio dropped slightly to 56.86% (FY2008: 59.58%) notwithstanding the continued investments in branch remodelling, network expansion, as well as its IT infrastructure and human capital development.
All the Banking Group’s business divisions performed well in FY2009. Its Consumer Banking division remained the largest contributor, representing 66.39% of the Bank’s total gross financing portfolio. The Bank’s non-fund based income also registered a significant jump by 30.60% to RM138.60 million with contributions coming mainly from the Corporate Investment Banking, Treasury and Consumer Banking divisions.
The Bank added seven new branches in strategic locations throughout the states of Selangor, Pahang and Sabah bringing its total branch network to 97 branches. The total number of branches is expected to cross the 100 mark by the end of 2009. To sustain the momentum of its branch rationalisation exercise and to enhance its delivery outreach and standards, existing branches were relocated to more strategic business growth areas, while 15 branches were remodelled. On top of this, the Bank continued to promote its alternative delivery channels. To broaden its foreign currency retail services capability, Bank Islam introduced two Bureau de Change outlets – one within the Low Cost Carrier Terminal at the Kuala Lumpur International Airport, and another in Karamunsing, Sabah.
To drive business growth, several innovative products and services were introduced. These included the An Najah NID-I, a healthcare-based capital protected structured investment product and the Al-Awfar, Islamic banking’s fi rst-of-its-kind savings-i and investment-i account which rewards customers with cash prizes. To strengthen its human capital, Bank Islam has developed a structured leadership and succession planning programme. Enhancements to its core banking system, risk management system and financial collection system will go a long way in enhancing the Bank’s overall IT capability.
Bank lslam is also collaborating with Lembaga Tabung Haji (“LTH”) to cross-sell its products and services to LTH’s huge nationwide base of some fi ve million prospects and its vast group of companies. The Bank’s wholly owned subsidiary, Bank Islam Trust Company (Labuan) signed a memorandum of understanding with Bank Muamalat Indonesia to explore cooperation in trust and remittance services to the world’s largest Islamic population. In FY2009, its wholly-owned subsidiary BIMB Investment Management Bhd, secured the Edge-Lipper Malaysia Fund Award for the Best Mixed Asset MYR Balanced Islamic Fund. Moving forward, Bank Islam will embark on its three-year Sustainable Growth Plan that will build upon the strong foundations laid under the Turnaround Plan. This new strategic blueprint incorporates six pillars to drive business growth i.e. business innovation; robust risk management; the strengthening of enabling infrastructure; capability and capacity building; franchise development; and inorganic growth and corporate expansion.
Takaful Malaysia recorded a marginal decline in operating revenue of 2.48% to RM1.05 billion in FY2009. The decline was due to the lower contribution from the Family Takaful business in the absence of a product similar to its single contribution investment-linked product, Takaful myAl-Afdhal, which on its own generated RM90.2 million in FY2008. The General Takaful business, however, did grow by 31.12% (based on gross contribution) following a realignment of several non-profitable classes in FY2008 as well as Takaful Malaysia’s enhanced distribution capability through its expanded corporate agent base.
Amidst the uncertainties in the financial markets, Takaful Malaysia garnered investment income of RM171.42 million, higher than the preceding year’s RM150.84 million.This result was all the more commendable given the lower returns from the equity portfolio in line with the lacklustre performance of the local equity market and the declining profit rate from fixed placements. Higher income from other asset classes helped cushion the lower results of the equity portfolio. The Islamic bonds portfolio recorded a significant increase in net income of 20.94% to RM84.69 million, while net income from government investment issues rose by 5.81% to RM19.11 million. As a result of Takaful Malaysia’s proactive management approach, its overall equity portfolio outperformed the FBM Shariah Emas Index by 10.40%.
Takaful Malaysia’s PBZT increased to RM49.72 million against the preceding year’s RM37.91 million. In tandem with the realignment strategy to move out of non-profitable classes, the General Takaful business performed favourably. Furthermore, measures taken to improve productivity and operational efficiency resulted in lower net claims incurred of RM28.18 million and turned the RM21.2 million bad debt expense incurred in FY2008 into a recovery of RM5.6 million in FY2009.
The first strategy, the elevation of customer service levels, saw the company investing in IT solutions to better track and manage the customer experience. Improvements on the human capital
front saw its front-liners being trained to be more responsive and knowledgeable. To better service the middle-upper target market who demand higher quality services, Takaful Malaysia introduced new standard operating procedures to provide a structured and disciplined approach to customer service.
The second strategy, the development of a retail channel of distribution to replace the existing Takaful Family retail model saw the Wakalah model being introduced in late 2008. Involving the recruitment of retail agents or Takaful Financial Consultants, the Wakalah model is similar to a conventional agency structure. This move marks Takaful Malaysia’s entry into the highly competitive agency-driven market where service levels and innovative products are essential for success.
Finally, to expand and streamline its distribution network, Takaful Malaysia grew its number of corporate agents to over 1,000 and introduced the Takaful myDesk at selected Tabung Haji offices.
With this enhanced distribution capability, Takaful Malaysia has been able to reduce the number of branches and streamline its operations thus leading to lower operating expenses and increased operational efficiency.
Early 2009 saw the implementation of Premia, Takaful Malaysia’s new core system that replaced its legacy system. With the enhanced IT infrastructure, the company is in a position to better serve its customers, operate more seamlessly and expand its agency network exponentially. On the human capital front, Takaful Malaysia now has a full team on board and all senior positions have been filled by experienced professionals.
In May 2009, Takaful Malaysia signed a joint venture agreement with PT Syarikat Takaful Indonesia and Koperasi Karyawan Takaful which set out the terms and conditions to govern their respective shareholdings in PT Asuransi Takaful Keluarga. This follows Takaful Malaysia’s RM21.83 million capital injection into PT Asuransi Takaful Keluarga in the same month.
With Bank Negara Malaysia planning to issue two new Takaful licences, the outlook for Takaful products and services is bright although the playing field is expected to become more competitive. New players which will help keep the industry vibrant as they raise the bar on product and service innovations as well as compelling all players to work even harder.
For the year under review the BIMSEC Group recorded a PBZT of RM0.42 million. This represents an 87.11% decrease from the previous year’s PBZT of RM3.24 million. At company level, BIMB Securities Sdn. Bhd. (“BIMSEC”) also showed a decrease in PBZT from the previous year‘s RM3.58 million to RM0.79 million. This was attributable to the adverse global environment which affected the local equity market from the fourth quarter of 2008 onwards.
Moving forward, our stockbroking arm will continue to enhance its retail and institutional businesses against the backdrop of current market sentiments. BIMBSEC is optimistic that its market share in terms of trading volume and value will improve as a result of aggressive marketing efforts and the strengthening of our dealing and research teams.
The combined Loss Before Zakat & Tax (“LBZT”) of the Venture Capital arm of the Group, comprising BIMB Venture Capital Sdn Bhd (“BIMBVC”) and BIMB Musyarakah Satu Sdn Bhd (“BIMBMS”), for the year under review was RM2.71 million. (Note: BIMBMS turned in a LBZT for the year of RM2.73 million, whereas BIMBVC posted profit before tax of RM0.02 million).
As part of efforts to rationalise the Group’s business activities, the Group had made a conscious decision not to pursue further involvement in the venture capital industry. The strategy for our Venture Capital division going forward is to recoup the remaining investment held by BIMBMS. Currently, BIMBVC is undergoing the process of a members’ voluntary winding-up.
lagging behind those elsewhere.
The pace of recovery is slow, and activity remains far below pre-crisis levels. The pickup is being led by a rebound in manufacturing and a turn in the inventory cycle, and there are some signs of gradually stabilising retail sales, returning consumer confidence, and firmer housing markets. As prospects have improved, commodity prices have staged a comeback from lows reached earlier this year, and world trade is beginning to pick up. Thus, after contracting by about 1% in 2009, global activity is forecast to expand by about 3% in 2010 – still well below the rates achieved before the crisis. Going forward, the IMF is projecting global growth of about 3.1% in 2010.
For the ASEAN economies, the outlook is more mixed. In the more export-oriented economies such as Malaysia and Thailand, activity will increase gradually during the second half of 2009, with stronger growth projected in 2010. In Malaysia, consumer and business confidence has started to improve, possibly influenced by the Government’s fiscal stimulus packages, historically low interest rates and recent liberalisation measures to support the Malaysian economy. The IMF projects that Malaysia’s real GDP will contract to 3.6% in 2009 and will recover to reach 2.5% in 2010.
approximately 20.1% of the banking industry’s total financing portfolio. Net non-performing financing for Malaysia Islamic banks remained low at 2.4%. Islamic debt securities also continued to maintain their dominance in the Malaysian bond market, accounting for about 58% of the total bond market with almost two thirds of the equity market comprising Shariah compliant securities. The Takaful sector also experienced a growth with funds asset registering an increase of more than 8%.
The burgeoning Islamic finance segment continues to grow. The last 10 years have seen an increase in Islamic financial institutions that include full-fl edged Islamic banks and financial development institutions that engage in Islamic banking, takaful, re-takaful and capital market activities. Several of these players continue to form strategic partnerships with foreign players. Following the announcement of liberalisation initiatives in April 2009, new mega Islamic banking licenses and up to two family takaful licenses are expected to be issued
this year.
On the global front, Islamic fi nancial assets are projected to grow to USD1.6 trillion by 2012 while outstanding global sukuk to date is valued at approximately USD152.8 billion. All these
developments underscore the fact that Islamic finance will remain a growing industry with many markets and potential new sources of funds to tap.
Our banking subsidiary, Bank Islam, will continue to exercise prudence in its financing activities with an emphasis on the credit quality of its consumer, commercial and corporate clientele. At the same time, it will focus on recession-proof economic sectors, non-fund based income and deposits growth. As it embarks on its new three-year Sustainable Growth Plan (2010 – 2012), the Bank will also continue to invest in capacity and capability building as well as enhance its IT infrastructure and branch network.
As it gears for growth in the new fi nancial year, Takaful Malaysia will remain prudent in its investments and continue to rationalise and right-size its branch network while leveraging on the Group’s infrastructure to market its products and services. Even as Takaful Malaysia works to tighten up its underwriting standards and dispense with unprofi table businesses in its portfolio, we are
confident going forward, it will fi nd itself in a position of strength.
BHB, as a Group, and its subsidiaries will work hard to face the challenges of the marketplace and capitalise on the many opportunities before us while undertaking the necessary measures to protect stakeholders’ interests. Going forward, we envisage that the Group will perform satisfactorily in FY2010.
gratitude to the Government and regulators, in particular Bank Negara Malaysia, the Securities Commission and Bursa Malaysia Securities Berhad, for their steadfast guidance and support.
To the loyal and hard working management team and staff at BHB Group, please accept our heartfelt appreciation for your perseverance and fine work that continues to propel us forward on our journey to success.
The Board would also like to assure our valued Shareholders that we will continue to work hard to leverage on our expertise and insights to further strengthen and secure the future growth of the Group. We trust that all our stakeholders too will continue to give us their continuous support as we endeavour to strengthen and grow BHB.
Thank you and Wassalam.
TAN SRI SAMSUDIN OSMAN
Chairman
http://www.bimbholdings.com/about-us/letter-shareholders
The Board of Directors of BIMB Holdings Berhad (“BHB” or “the Group”) is pleased to report that BHB turned in a satisfactory performance even as we weathered the challenges of a difficult operating environment during the year under review. We are pleased to present the Annual Report and Financial Statements of BHB and the Group for the financial year ended 30 June 2009 (“FY2009”).
Financial Performance
Despite adverse market conditions underpinned by the overall slowdown in global economy, the Group’s revenue grew by 4.44% to RM1.49 billion in FY2009 over the preceding year’s revenue of RM1.43 billion. The bulk of this revenue comprised income derived from the Group’s investment of depositors’ funds and shareholders’ funds of RM1.02 billion and RM0.47 billion respectively.However, lower recoveries on financing led to a net allowance for losses in financing position amounting to RM123.29 million in FY2009 compared to a net recovery in fi nancing position of RM7.55 million in FY2008. This in turn weighed down on the Group’s profit before zakat and tax (“PBZT”) for the year, which resulted in a 21.20% decline in our PBZT to RM299.13 million (FY2008: RM379.62 million). On the whole, higher fund based activities and stable fee and commission income from our Banking operations helped to balance out a 12.90% decline in profi t from General Takaful and Family Takaful funds from our Takaful segment.
The year saw shareholders’ funds rising 26.58% to RM1.27 billion, while total assets expanded by 15.65% to RM31.90 billion. The Group’s net tangible assets per share grew 5.31% to 119 sen (FY2008: 113 sen), while we posted return on assets of 1.01% and return on equity of 9.98% respectively. On the banking front, the Group remains well-capitalised with a core capital ratio of 12.25% and a risk-weighted capital ratio (“RWCR”) of 13.87%.
Islamic Banking
Bank Islam Malaysia Berhad (“Bank Islam” or “the Bank”) made strong strides forward in the year under review, achieving all performance targets and concluding all five pillars of its three-year Turnaround Plan on schedule. The Banking Group’s total income grew 8.38% to RM1.27 billion in FY2009 from RM1.18 billion the year before. Despite adverse market conditions, Bank Islam garnered a satisfactory PBZT of RM235.87 million, although some 25.58% lower than the record PBZT of RM316.94 million recorded in FY2008. The lower PBZT for FY2009 was mainly due to financing recovery from a large customer account in the preceding year. The Banking Group’s financial performance was particularly encouraging as profit before allowances surged 20.80% to RM361.10 million on the back of net financing growth of 6.63% to RM9.66 billion and growth in deposits from customers of 21.44% to RM25.21 billion.The Banking Group’s capitalisation and asset quality indicators remained strong in FY2009 with its RWCR at 13.87% (FY2008: 13.15%) and core capital ratio at 12.25% (FY2008: 11.27%). In April 2009, Bank Islam had initiated a rights issue of Islamic Convertible Redeemable Non-Cumulative Preference Shares (“ICRNCPS”) to raise additional Tier-1 capital amounting to RM540 million (“Bank Islam Capital Raising”). Following the completion of the Bank Islam Capital Raising in October 2009, the Banking Group’s RWCR is projected to strengthen further to 18.29%.
The Banking Group’s asset quality improved considerably as evidenced by the continuous decline in its net non-performing financing ratio to 4.90% (FY2008: 7.82%) and a rise in its financing loss coverage ratio to 80.81% (FY2008: 75.84%). Return on equity and return on assets (based on PBZT) declined to 16.55% (FY2008: 27.11%) and 0.92% (FY2008: 1.50%) respectively, while its cost-to-income ratio dropped slightly to 56.86% (FY2008: 59.58%) notwithstanding the continued investments in branch remodelling, network expansion, as well as its IT infrastructure and human capital development.All the Banking Group’s business divisions performed well in FY2009. Its Consumer Banking division remained the largest contributor, representing 66.39% of the Bank’s total gross financing portfolio. The Bank’s non-fund based income also registered a significant jump by 30.60% to RM138.60 million with contributions coming mainly from the Corporate Investment Banking, Treasury and Consumer Banking divisions.
Key Developments
Several key developments took place in FY2009 that helped ensure Bank Islam remained as a dynamic and competitive entity. As a result of its aggressive corporate rebranding, branch remodelling and business transformation initiatives, as well as the introduction of innovative products and services, Bank Islam was conferred the prestigious Platinum Award for the “Most Trusted Brand for Islamic Financial Services” in the annual Reader’s Digest Trusted Brands Award 2009.The Bank added seven new branches in strategic locations throughout the states of Selangor, Pahang and Sabah bringing its total branch network to 97 branches. The total number of branches is expected to cross the 100 mark by the end of 2009. To sustain the momentum of its branch rationalisation exercise and to enhance its delivery outreach and standards, existing branches were relocated to more strategic business growth areas, while 15 branches were remodelled. On top of this, the Bank continued to promote its alternative delivery channels. To broaden its foreign currency retail services capability, Bank Islam introduced two Bureau de Change outlets – one within the Low Cost Carrier Terminal at the Kuala Lumpur International Airport, and another in Karamunsing, Sabah.
To drive business growth, several innovative products and services were introduced. These included the An Najah NID-I, a healthcare-based capital protected structured investment product and the Al-Awfar, Islamic banking’s fi rst-of-its-kind savings-i and investment-i account which rewards customers with cash prizes. To strengthen its human capital, Bank Islam has developed a structured leadership and succession planning programme. Enhancements to its core banking system, risk management system and financial collection system will go a long way in enhancing the Bank’s overall IT capability.
Bank lslam is also collaborating with Lembaga Tabung Haji (“LTH”) to cross-sell its products and services to LTH’s huge nationwide base of some fi ve million prospects and its vast group of companies. The Bank’s wholly owned subsidiary, Bank Islam Trust Company (Labuan) signed a memorandum of understanding with Bank Muamalat Indonesia to explore cooperation in trust and remittance services to the world’s largest Islamic population. In FY2009, its wholly-owned subsidiary BIMB Investment Management Bhd, secured the Edge-Lipper Malaysia Fund Award for the Best Mixed Asset MYR Balanced Islamic Fund. Moving forward, Bank Islam will embark on its three-year Sustainable Growth Plan that will build upon the strong foundations laid under the Turnaround Plan. This new strategic blueprint incorporates six pillars to drive business growth i.e. business innovation; robust risk management; the strengthening of enabling infrastructure; capability and capacity building; franchise development; and inorganic growth and corporate expansion.
Takaful & Retakaful
Takaful Malaysia recorded a marginal decline in operating revenue of 2.48% to RM1.05 billion in FY2009. The decline was due to the lower contribution from the Family Takaful business in the absence of a product similar to its single contribution investment-linked product, Takaful myAl-Afdhal, which on its own generated RM90.2 million in FY2008. The General Takaful business, however, did grow by 31.12% (based on gross contribution) following a realignment of several non-profitable classes in FY2008 as well as Takaful Malaysia’s enhanced distribution capability through its expanded corporate agent base.Amidst the uncertainties in the financial markets, Takaful Malaysia garnered investment income of RM171.42 million, higher than the preceding year’s RM150.84 million.This result was all the more commendable given the lower returns from the equity portfolio in line with the lacklustre performance of the local equity market and the declining profit rate from fixed placements. Higher income from other asset classes helped cushion the lower results of the equity portfolio. The Islamic bonds portfolio recorded a significant increase in net income of 20.94% to RM84.69 million, while net income from government investment issues rose by 5.81% to RM19.11 million. As a result of Takaful Malaysia’s proactive management approach, its overall equity portfolio outperformed the FBM Shariah Emas Index by 10.40%.Takaful Malaysia’s PBZT increased to RM49.72 million against the preceding year’s RM37.91 million. In tandem with the realignment strategy to move out of non-profitable classes, the General Takaful business performed favourably. Furthermore, measures taken to improve productivity and operational efficiency resulted in lower net claims incurred of RM28.18 million and turned the RM21.2 million bad debt expense incurred in FY2008 into a recovery of RM5.6 million in FY2009.
Strategic Initiatives
To maintain its edge amidst a highly competitive playing field, Takaful Malaysia made every effort to bolster its highly successful Mudharabah or profit-sharing model with several value-adding initiatives. As such, a three-pronged strategy was brought into play.The first strategy, the elevation of customer service levels, saw the company investing in IT solutions to better track and manage the customer experience. Improvements on the human capital
front saw its front-liners being trained to be more responsive and knowledgeable. To better service the middle-upper target market who demand higher quality services, Takaful Malaysia introduced new standard operating procedures to provide a structured and disciplined approach to customer service.
The second strategy, the development of a retail channel of distribution to replace the existing Takaful Family retail model saw the Wakalah model being introduced in late 2008. Involving the recruitment of retail agents or Takaful Financial Consultants, the Wakalah model is similar to a conventional agency structure. This move marks Takaful Malaysia’s entry into the highly competitive agency-driven market where service levels and innovative products are essential for success.
Finally, to expand and streamline its distribution network, Takaful Malaysia grew its number of corporate agents to over 1,000 and introduced the Takaful myDesk at selected Tabung Haji offices.
With this enhanced distribution capability, Takaful Malaysia has been able to reduce the number of branches and streamline its operations thus leading to lower operating expenses and increased operational efficiency.
Early 2009 saw the implementation of Premia, Takaful Malaysia’s new core system that replaced its legacy system. With the enhanced IT infrastructure, the company is in a position to better serve its customers, operate more seamlessly and expand its agency network exponentially. On the human capital front, Takaful Malaysia now has a full team on board and all senior positions have been filled by experienced professionals.
In May 2009, Takaful Malaysia signed a joint venture agreement with PT Syarikat Takaful Indonesia and Koperasi Karyawan Takaful which set out the terms and conditions to govern their respective shareholdings in PT Asuransi Takaful Keluarga. This follows Takaful Malaysia’s RM21.83 million capital injection into PT Asuransi Takaful Keluarga in the same month.
With Bank Negara Malaysia planning to issue two new Takaful licences, the outlook for Takaful products and services is bright although the playing field is expected to become more competitive. New players which will help keep the industry vibrant as they raise the bar on product and service innovations as well as compelling all players to work even harder.
Stockbroking
For the year under review the BIMSEC Group recorded a PBZT of RM0.42 million. This represents an 87.11% decrease from the previous year’s PBZT of RM3.24 million. At company level, BIMB Securities Sdn. Bhd. (“BIMSEC”) also showed a decrease in PBZT from the previous year‘s RM3.58 million to RM0.79 million. This was attributable to the adverse global environment which affected the local equity market from the fourth quarter of 2008 onwards.Moving forward, our stockbroking arm will continue to enhance its retail and institutional businesses against the backdrop of current market sentiments. BIMBSEC is optimistic that its market share in terms of trading volume and value will improve as a result of aggressive marketing efforts and the strengthening of our dealing and research teams.
Venture Capital
The combined Loss Before Zakat & Tax (“LBZT”) of the Venture Capital arm of the Group, comprising BIMB Venture Capital Sdn Bhd (“BIMBVC”) and BIMB Musyarakah Satu Sdn Bhd (“BIMBMS”), for the year under review was RM2.71 million. (Note: BIMBMS turned in a LBZT for the year of RM2.73 million, whereas BIMBVC posted profit before tax of RM0.02 million).As part of efforts to rationalise the Group’s business activities, the Group had made a conscious decision not to pursue further involvement in the venture capital industry. The strategy for our Venture Capital division going forward is to recoup the remaining investment held by BIMBMS. Currently, BIMBVC is undergoing the process of a members’ voluntary winding-up.
Leasing (Ijarah)
The property leasing arm of the Group, Syarikat Al-Ijarah Sdn. Bhd., posted a PBZT of RM17.12 million for the year under review, which is a decrease of 24.40% from last year’s PBZT of RM19.50 million. This is due to the decrease in lease rental income in 2009 by 98.07% or RM28.32 million due to the redemption of assets leased to Bank Islam in July 2008. This, consequently gave rise to an exceptional gain on redemption of RM14.54 million, partly offsetting the decline in lease rental income.Corporate Governance Practices
As part of our commitment to uphold the tenets of transparency, integrity and accountability, the Group continues to undertake strong corporate governance measures that aim to protect and enhance shareholder value. Stringent internal controls are deeply embedded within our corporate culture to ensure that transparent and accountable reporting are in place. The Group Enterprise Risk Management Framework which helps us to identify, evaluate, manage and monitor significant risks has been adopted by our major operating subsidiaries. Recognising that IT is key to supporting service efficiency and delivery systems as well as the implementation of a risk-based capital framework, our Banking subsidiary, Bank Islam, has developed an IT Risk Framework that has also been adopted by Bank Islam’s subsidiaries.Corporate Responsibility Initiatives
As an investment holding company operating in compliance with Shariah principles, the BHB Group is committed to undertaking responsible and sustainable corporate practices that enable us to balance our good bottom-line performance with respectable social and environmental performance. In the year under review, our subsidiaries continued to implement tangible corporate responsibility (“CR”) initiatives in the areas of the Community, Workplace, Marketplace and Environment. Details of the year’s CR initiatives can be found in the CR section of this Annual Report.Economic Outlook
In its October 2009 “World Economic Outlook”, the International Monetary Fund (“IMF”) reported that the global economy appears to be expanding once again, bolstered by the strong performance of Asian economies and stabilisation or modest recovery elsewhere. In the advanced economies, unprecedented government intervention has stabilised activity and has fostered a return to modest growth. Emerging and developing economies are generally further ahead on the road to recovery, led by a resurgence in Asia and helped by the recent rebound in commodity prices and supportive policies. Many countries in emerging Europe and the Commonwealth of Independent States have been hit particularly hard by the crisis, and developments in these economies are generallylagging behind those elsewhere.
The pace of recovery is slow, and activity remains far below pre-crisis levels. The pickup is being led by a rebound in manufacturing and a turn in the inventory cycle, and there are some signs of gradually stabilising retail sales, returning consumer confidence, and firmer housing markets. As prospects have improved, commodity prices have staged a comeback from lows reached earlier this year, and world trade is beginning to pick up. Thus, after contracting by about 1% in 2009, global activity is forecast to expand by about 3% in 2010 – still well below the rates achieved before the crisis. Going forward, the IMF is projecting global growth of about 3.1% in 2010.For the ASEAN economies, the outlook is more mixed. In the more export-oriented economies such as Malaysia and Thailand, activity will increase gradually during the second half of 2009, with stronger growth projected in 2010. In Malaysia, consumer and business confidence has started to improve, possibly influenced by the Government’s fiscal stimulus packages, historically low interest rates and recent liberalisation measures to support the Malaysian economy. The IMF projects that Malaysia’s real GDP will contract to 3.6% in 2009 and will recover to reach 2.5% in 2010.
Market Outlook
On the Malaysian banking front, Islamic banking assets at the end of 2Q 2009 comprised about 19% of total banking assets, with total financing amounting to RM118 billion representingapproximately 20.1% of the banking industry’s total financing portfolio. Net non-performing financing for Malaysia Islamic banks remained low at 2.4%. Islamic debt securities also continued to maintain their dominance in the Malaysian bond market, accounting for about 58% of the total bond market with almost two thirds of the equity market comprising Shariah compliant securities. The Takaful sector also experienced a growth with funds asset registering an increase of more than 8%.
The burgeoning Islamic finance segment continues to grow. The last 10 years have seen an increase in Islamic financial institutions that include full-fl edged Islamic banks and financial development institutions that engage in Islamic banking, takaful, re-takaful and capital market activities. Several of these players continue to form strategic partnerships with foreign players. Following the announcement of liberalisation initiatives in April 2009, new mega Islamic banking licenses and up to two family takaful licenses are expected to be issued
this year.
On the global front, Islamic fi nancial assets are projected to grow to USD1.6 trillion by 2012 while outstanding global sukuk to date is valued at approximately USD152.8 billion. All these
developments underscore the fact that Islamic finance will remain a growing industry with many markets and potential new sources of funds to tap.
Prospects
While the Group has successfully weathered the challenges of FY2009, going forward we remain cautiously optimistic about FY2010’s outlook. Despite the positive signs of economic recovery and the many opportunities in the burgeoning Islamic financial landscape, we will continue to adopt a prudent approach to the management of the asset quality of our banking, takaful and stockbroking business segments. BHB will continue to implement measures to reduce operating overheads and to enhance operational efficiencies while exploring strategic collaboration with the right business partners. To support our business objectives, we will continue to leverage on technology, make improvements to our systems and processes, mitigate risk through a strong corporate governance and risk management framework as well as improve the quality of our human capital.Our banking subsidiary, Bank Islam, will continue to exercise prudence in its financing activities with an emphasis on the credit quality of its consumer, commercial and corporate clientele. At the same time, it will focus on recession-proof economic sectors, non-fund based income and deposits growth. As it embarks on its new three-year Sustainable Growth Plan (2010 – 2012), the Bank will also continue to invest in capacity and capability building as well as enhance its IT infrastructure and branch network.
As it gears for growth in the new fi nancial year, Takaful Malaysia will remain prudent in its investments and continue to rationalise and right-size its branch network while leveraging on the Group’s infrastructure to market its products and services. Even as Takaful Malaysia works to tighten up its underwriting standards and dispense with unprofi table businesses in its portfolio, we are
confident going forward, it will fi nd itself in a position of strength.
BHB, as a Group, and its subsidiaries will work hard to face the challenges of the marketplace and capitalise on the many opportunities before us while undertaking the necessary measures to protect stakeholders’ interests. Going forward, we envisage that the Group will perform satisfactorily in FY2010.
Acknowledgements
The Board of Directors wishes to convey our sincere appreciation to our shareholders, customers and business associates for your unwavering support of BHB and confidence in the Group. Ourgratitude to the Government and regulators, in particular Bank Negara Malaysia, the Securities Commission and Bursa Malaysia Securities Berhad, for their steadfast guidance and support.
To the loyal and hard working management team and staff at BHB Group, please accept our heartfelt appreciation for your perseverance and fine work that continues to propel us forward on our journey to success.
The Board would also like to assure our valued Shareholders that we will continue to work hard to leverage on our expertise and insights to further strengthen and secure the future growth of the Group. We trust that all our stakeholders too will continue to give us their continuous support as we endeavour to strengthen and grow BHB.
Thank you and Wassalam.
TAN SRI SAMSUDIN OSMAN
Chairman
http://www.bimbholdings.com/about-us/letter-shareholders
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