BIMB Integrated Annual Report 2017

During the year, BHB also appointed Bank Islam’s Chief Compliance Officer to oversee and monitor the compliance framework of BHB as a financial holding company. The Group’s Risk profile in 2017 continued to be maintained within the risk appetite of each operating unit. For more information, please refer to the Corporate Governance Overview Statement on page 90. CAPITAL & LIQUIDITY MANAGEMENT We achieved a capital adequacy ratio of 13.70% for the year under review, while Bank Islam enjoyed an even higher ratio of 16.44% – both exceeding 2017’s requirement of 9.25% by wide margins. Takaful Malaysia continued to be well-capitalised, exceeding minimum industry requirements of 130%. BIMB Securities’ capital adequacy ratio as at 31 December 2017 was 18.20 times, exceeding Bursa’s minimum requirement of 1.20 times. As part of our strategy to strengthen our capital base, BHB continued with the dividend reinvestment policy introduced in 2015. From 89.40% of the dividend being reinvested into shares for financial year 2016 (“FY2016”), this year 90.88% of the RM229.3 million dividends declared was reinvested into 55,825,000 new shares. The strong capital adequacy strengthens our ability to grow and underwrite new businesses. This also helps to cushion the impending impact of Malaysian Financial Reporting Standards 9 (“MFRS 9”). During the year, Bank Islam’s liquidity coverage ratio was above 100% mainly driven by its continued strategy to expand retail- based deposits. The Bank has also rightsized its funding mix and continued to focus on growing its investment account as part of its capital efficient strategy. The Bank has outlined core strategies to address Net Stable Funding Ratio (“NSFR”) requirements which will be implemented after 1 Jan 2019. NSFR is a liquidity standard that requires banks to maintain a stable funding in relation to the composition of their assets and off-balance sheet activities. This could potentially lead to higher funding costs and further margin compression. On the corporate front, the Bank is in the midst of establishing a RM10 billion sukuk programme, to facilitate issuance of new senior and subordinated sukuk in readiness to comply with NSFR. The Bank also established a RM2 billion Cagamas facility as a long-term alternative funding avenue. Financial Review BHB’s financial performance is a direct reflection of that of our subsidiaries. Bank Islam, Takaful Malaysia and BIMB Securities continued execution of their strategies to deliver robust MANAGEMENT DISCUSSION & ANALYSIS BIMB HOLDINGS BERHAD’S PERFORMANCE REVIEW & OUTLOOK results, all achieving record profits. Based on their prudent yet strategic operations, our subsidiaries were able to deliver on their Key Performance Indicators (“KPIs”), ensuring healthy Group performance. On the back of a strengthening global and domestic economy in 2017, BHB Group enjoyed a 9.10% growth to deliver highest ever Profit Before Zakat and Tax (“PBZT”) of RM948.3 million. Net profit attributable to shareholders rose 10.88% or RM60.8 million to RM619.8 million. The strong performance translated to a pre-tax Return on Equity (“ROE”) of 20.76% and after tax ROE of 15.40%, one of highest among listed financial group peers. Pre-tax Return on Assets (“ROA”) stood at 1.47%. Spearheading the Group’s profitability, Bank Islam reported a PBZT of RM767.1 million for FY2017, marking a 6.48% (or RM46.7 million) increase over its PBZT in the previous financial year of RM720.4 million. This was driven by higher than expected net financing growth of 7.46%. Takaful Malaysia meanwhile, recorded a PBZT of RM253.7 million for FY2017, a double digit increase of 14.79% as compared with RM221.0 million in the same period last year. BIMB Securities also registered a record PBZT of RM2.1 million. RETURN TO SHAREHOLDERS For financial year ended 2017, a single tier dividend of up to RM229.3 million or 14.0 sen per share was declared. The Dividend Reinvestment Plan (“DRP”) has been offered to the entire single tier dividend. BHB registered highest DRP with a subscription rate of 90.88% indicating continuous strong commitment and participation by its shareholders. KEY FINANCIAL INDICATORS FOR FY2017 KPI FY2017 FY2016 TARGET FY2018 ROE (%) – based on PBT 20.76 21.97 17.70 ROA (%) – based on PBT 1.47 1.44 1.28 ROE (%) – based on PAT 15.40 15.91 12.23 ROA (%) – based on PAT 1.10 1.05 0.88 Cost to income ratio (%) 61.39 58.75 61.31 Earnings per share (sen) 37.94 35.25 31.32 Net tangible assets per share (RM) 2.77 2.44 2.77 56 BIMB HOLDINGS BERHAD Integrated Annual Report 2017