BIMB Integrated Annual Report 2017

LETTER TO SHAREHOLDERS I take this opportunity to commend the Group for staying alert to its responsibilities as the nation’s sole Islamic Financial Holding Company (“FHC”) and recognising that responsible financing is a journey that needs constant reviewing and enhancement of standards over time to create positive outcomes for our stakeholders. STRONG PERFORMANCE Our subsidiaries remain anchored on healthy asset quality, strong earnings and continued industry leadership during the year. The Group enjoyed heightened contributions from its Islamic Banking and Takaful arm, which contributed 75% and 25% respectively to BHB Group’s profit. For the third consecutive year, Bank Islam Berhad (“Bank Islam”), as BHB’s banking arm, achieved a net income margin of more than 2.50%, which is the industry’s highest. For 2017, this was a result of the Bank’s “3-D” approach that focused on driving deposits, staying defensive (striking a balance between assets growth and asset quality), and becoming digitally focused. This enabled the Bank to achieve a higher composition of low-cost funds. Bank Islam has also managed to sustain above industry average financing growth, which, for the last five years in terms of compound annual growth rate (“CAGR”) is 16.60% against the banking industry’s 7.60%. Despite the robust financing growth, asset quality was preserved with clear focus on selective assets growth and a strong credit and collection infrastructure in place. Bank Islam has a strong and healthy portfolio with relatively low gross impaired financing, hovering around 1% for the past five years compared to the industry’s average of 1.53%. In line with the Group’s focus on sustainability, in 2017 the Bank has become an early adopter of the Bank Negara Malaysia-led Value-Based Intermediation (“VBI”) initiative which focuses on the impact of banking business to various stakeholders and targets to support economic, social and environmental development. More details on Bank Islam’s performance are reported on page 57 of the Management Discussion and Analysis (“MD&A”). Syarikat Takaful Malaysia Berhad (“Takaful Malaysia”), Malaysia’s oldest takaful operator, continued to enjoy good growth in both its family and general takaful businesses. It maintained its top market position in the takaful business. Takaful Malaysia’s strategic bancatakaful partnership with AmBank Islamic Bhd, established in December 2017, to market its general takaful products to the bank’s customer base across the country is another promising development. It ensures the Company’s portfolio a stronger foothold in the industry through nationwide distribution channels of partner banks such as Ambank Islamic, Affin Islamic and RHB Islamic. As of 2017, Takaful Malaysia commands a leading 23% of the family takaful market and ranks number two with a 23%market share in the general takaful business. It achieved a high 30% growth rate for its bancassurance business during the year and delivered net return on equity of 26.72%, the highest return on equity among all government-linked companies. It also enjoyed a lower net claim ratio arising from a unique proposition of 15% Cash Back on no claims and stringent underwriting. More details on Takaful Malaysia’s performance are reported on page 59 of MD&A. BIMB Securities Sdn Bhd (“BIMB Securities”) played an important role as the only full-fledged Shariah-compliant Participating Organisation of Bursa Malaysia Securities Berhad (“Bursa Malaysia”); with the launch of the world’s first end-to- end, integrated Islamic securities exchange in platform, called the Bursa Malaysia-i in 2016. This has expanded the nation’s fully shariah-compliant investing programme, growing new opportunities for BIMB Securities. It had an outstanding year due to its offerings of a bigger volume of shares to institutional investors through on market and off market transactions; and at the same time enhanced online stock trading capabilities for its retail clients. This led to an increase of income from dealing activities and a substantial 357.05% increase in Profit After Zakat and Tax. More details on BIMB Securities’ performance are reported on page 62 of the MD&A. 75 % BANK ISLAM 25 % TAKAFUL MALAYSIA PROFIT CONTRIBUTION 24 BIMB HOLDINGS BERHAD Integrated Annual Report 2017