On behalf of the Board of Directors, I am pleased to present the Annual Report and Audited Financial Statements of Hong Leong Financial Group Berhad (“HLFG” or “the Group”) for the financial year ended 30 June 2019 (“FY19”).

FINANCIAL RESULTS – REVIEW OF THE YEAR’S PERFORMANCE

The business environment remains challenging amidst continuing global economic uncertainties, escalation oftrade tensions between US and China and a subdued domestic economy.

Against this demanding backdrop, HLFG recorded a net profit attributable to shareholders of RM1,919 million for the financial year ended 30 June 2019, flat to last year. Our results were supported by continued steady performances across our core businesses, mainly our commercial banking, insurance and asset management businesses. This was coupled with cost-saving initiatives, a careful monitoring of risks during the period and continued reinvestment into digital initiatives across the financial group. We remain focused in our strategy to improve long-term sustainable profits.

In respect of the performances of our key businesses, Hong Leong Bank Berhad (“HLB”) experienced moderate growth, with its net profit recorded at RM2,665 million, +1% year-on-year(“yoy”), ending the year with a better-than-market loan growth of 6.6% yoy. Hong Leong Assurance Berhad’s (“HLA”) reported net profit increased 5% yoy to RM221 million and we are pleased that its New Business Embedded Value showed a 15% yoy growth. Our investment banking and asset management businesses under Hong Leong Capital Berhad (“HLCB”) reported a lower net profit of RM68 million (-5.1% yoy) against a slowdown in capitaland equity market activities, although Hong Leong Asset Management Berhad (“HLAM”) continued to show a strong profit growth, up 80% yoy.

The Group’s key balance sheet and risk metrics remain strong. HLB’s gross impaired loan ratio stayed healthy at 0.78% whilst its loan impairment coverage was at 118%. Inclusive of additional regulatory reserves, HLB’s loan impairment coverage was at 197%. HLB’s liquidity ratio and capital position remained strong with a loan/deposit ratio of 84.4% and a total capital ratio of 16.3% as at 30 June 2019.

HLFG’s earnings per share increased to 167.8 sen in FY19, with a return on equity of 10.4%. Net assets per share rose 8% to RM16.78, from RM15.55 as at 30 June 2018.

Our Group consolidated capital position stayed robust, with a Common Equity Tier 1 ratio at 10.9% and a total capital ratio at 15.0%. In March and June 2019 respectively, we completed the issuances of Additional Tier-1 Capital Securities of RM400 million and Tier-2 Subordinated Notes of RM1.1 billion, in line with our capital plans.

In this financial year, the Board of Directors declared a second interim dividend of 29 sen. Together with the first interim dividend of 13 sen per share paid out on 27 December 2018, the total dividend for FY19 had increased from 40 sen last year to 42 sen per share, or a total dividend payment of RM480 million.

STRATEGIC OVERVIEW

The Group’s philosophy continues to embody an entrepreneurial vision focused on building long-term sustainable value for all its stakeholders. This vision guides our operating businesses to remain relevant, to be trustworthy, progressive, competitive and sustainable in pursuit of growth and the creation of business value. We believe that the key to ensuring sustainability is the continued co-existence of entrepreneurialism together with professional business management, discipline and governance.

BANKING

HLB has a strong market presence in mortgages, deposits, cards and wealth management. The management team ensures that HLB maintains asset quality metrics that are amongst the best in the industry, where its liquidity ratios remain prudent and its capital position kept comfortably above regulatory requirements.

Going forward, we will continue to execute our business plans by advancing on multiple fronts to achieve long-term sustainable growth. In this period, we will also continue to exercise vigilance on both credit initiation parameters and the health of our existing loan books.

We also acknowledge that developing the right human resources is critical to our long-term efforts. We believe that our businesses are best served by having and developing the right talent for the right jobs, while at the same time balancing other key business metrics such as our cost income ratio.

The financial sector has been increasingly challenged by continued advances in technology; in particular, in the way that businesses and operations are conducted. We expect this trend to speed up even further. To this end, we have made digitalisation a core part of the bank’s strategy and have been keeping abreast of new developments, re-investing our cost savings results into technology, as well as consciously positioning ourselves to benefit from this digital wave. We believe that we are on the right path and have also been refreshing the technology platforms through which we interact with our customers.

We remain committed to expand and grow our Islamic banking business with Hong Leong Islamic Bank Berhad (“HLISB”) playing the leading role in coordinating efforts across the banking group. For the year, HLISB’s gross Islamic financing assets grew by 14% to RM26.1 billion, comprising 19% of the wider Hong Leong Bank Group’s total gross financing assets. HLISB will continue its efforts towards the development of Islamic banking business by strengthening digital capabilities, upholding Shariah standards and value based intermediation, and encouraging diversified and innovative product offerings.

INSURANCE

Under HLA, our life insurance business has grown over the last decade. Our agency force team today at over 8,500 agents is triple the number compared 10 years ago, which was below 3,000 agents. In recent years, we have also focused on raising our agency force’s productivity and governance standards. HLA is presently the largest domestic life insurer and ranks amongst the top 4 life insurers in the country by new business premiums with continued strong contributions from our agency force along with improving Bancassurance sales.

After establishing ourselves within the Ordinary Life segment and having built up a sizeable distribution capability, our focus has been on driving and improving the profitability levers of the company. This strategy is being executed via a greater focus on Non-Participating and Investment-Linked segment, which has yielded positive results in growing our New Business Embedded Value.

Going forward, our focus is to continue to grow the business embedded value on a sustainable basis. This would be achieved by driving continued improvements in our new business embedded value, coupled with judicious management of our existing in-force business, expenses and investment returns.

Like the banking sector, the impact and use of digitalisation and InsurTech advances in the insurance sector is also accelerating. Accordingly, HLA has continued its digital journey across multiple fronts. With an established data warehouse, we are continuing the use of analytics capabilities to data mine our growing customer base to enhance effectiveness in both cross-selling and up-selling activities. We are also utilizing technology to enhance our customer service and experience. The HLA Customer 360 Portal allows our customers to have instant, seamless and convenient access to their policy information. We will continue to enhance all our distribution channels, in particular those relating to Bancassurance, by tapping on HLB’s wide network of over 250 plus branches.

On 1 July 2018, we converted our composite Takaful license to a single Family Takaful license, to focus on our Life businesses across both conventional and Takaful. Hong Leong MSIG Takaful Berhad remains committed to grow and promote our Family Takaful insurance business. We believe the potential for Islamic insurance is significant and our plans are to build a sizeable and sustainable business in reaching out and serving our customers better.

Outside Malaysia, we have HL Assurance Pte Ltd (“HLAS”) and Hong Leong Insurance (Asia) Limited (“HLIA”), which are niche general insurance companies operating in Singapore and Hong Kong. Both companies achieved commendable results in FY19. HLAS continues to register topline growth, with new business premiums at RM60.9 million for FY19, +52% yoy, whilst HLIA’s total premium grew 25% to RM124.3 million in FY19. Both companies are focusing efforts on their online distribution channels, with HLAS’s and HLIA’s online distribution channels contributing over 13% and 21% respectively of their total premiums.

INVESTMENT BANKING

Our investment banking arm, Hong Leong Investment Bank Berhad (“HLIB”) has made substantial progress since being awarded investment bank status in 2009. Over the years, we have achieved recognition in the Malaysian league tables as well as a share of notable deals in segments where we operate, especially in our niche of serving small and medium sized corporates. Within the stockbroking space, we have a steady medium sized brokerage which services both institutional and retail clients. Our asset management business under HLAM continues to show good progress and currently manages assets of over RM16 billion.

We will continue to nurture investment banking relationships by focusing on providing innovative business solutions, while our stockbroking outfit will continue to leverage on technology to better serve our customers.

RATINGS

HLB maintained its long-term financial institution rating of AAA which carries the highest ratings on our domestic rating scale. RAM Ratings Services Bhd (“RAM Ratings”) maintained the bank’s rating at AAA in recognition of its strong asset quality, sustained track record in funding and liquidity positions and other strong key metrics. Concurrently, RAM had also assigned an AA1/P1 Corporate Credit Ratings to HLFG. All the above long-term ratings were accorded a stable outlook. On the international ratings front, in January 2019, Moody’s upgraded HLB’s baseline credit assessment to a3, on par with the Malaysian sovereign rating.

RECOGNITION

I am pleased to report this year HLFG won the Best Managed Bank (Financial Group) in Malaysia at the Asian Banker Leadership Achievement Awards 2019. We also continued to receive a number of awards across all our operating businesses in recognition of our efforts in the industry.

HLB was awarded a number of digital awards recognizing its continuing efforts in its digital transformation journey. HLB was awarded the Best Innovation in Retail Banking Malaysia by The International Banker 2018 Asia & Australasia Awards. This was in recognition of our constant drive to improve products and services through state-ofthe-art banking solutions. The bank also won the Most Innovative Recruitment Strategy (In-House) – Gold by the Malaysian Digital Association.

HLB’s efforts to transform its customer experience as a digital bank was also recognized by Asiamoney when it gave HLB the Best Domestic Bank Award for Malaysia 2018. In winning the award, Asiamoney noted our customer centric approach which included several first-in-Malaysia innovations focused on improving overall customer experience.

In March 2019, HLB was recognized as the Best SME Bank in Malaysia by The Asian Banker at the International Excellence in Retail Financial Services Awards 2019. The award is in recognition of our achievements in the domestic retail and SME franchises.

HLB was also one of the winners in the Award for Highest Returns to Shareholders Over 3 Years awarded in The Edge - Billion Ringgit Club 2018 edition. The award is in recognition of the strong returns generated for our shareholders.

On the insurance front, HLA successfully bagged 2 awards in FY19. In recognition of its performance, HLA was awarded the prestigious Domestic Life Insurer of the Year at the Asian Banking and Finance Insurance Asia Awards 2018. It was awarded to HLA for rising above challenges and for its initiatives in the Malaysian domestic insurance market. During the same period, HLA was also named the Malaysia Best Life Insurance Company 2018 by World Finance Global Insurance and International Finance.

For Hong Leong Investment Bank Berhad (“HLIB”), our Debt Markets team continues to secure top position awards in the annual League awards by programme value and by number of issues for both conventional and Islamic issuance. The team has also successfully secured other awards, namely the Most Innovative Bond Deal in Southeast Asia 2018 in the 12th Annual Alpha Southeast Asia Deal & Solution Awards 2018.

HLIB’s Equity Markets and the Asset Management team of HLAM have also successfully secured various awards during the financial year.

The 3 awards won by HLIB’s Equity Markets team are as follows:
  • Best Small To Mid-Cap Corporate Finance House – 12th Annual Best Financial Institutions Awards 2018 – Alpha Southeast Asia
  • Best Domestic M&A Deal 2018 (Malaysia) – 12th Annual Alpha Southeast Asia Deal & Solution Awards 2018 (As Principal Advisor)
  • IFN Deals of the Year 2018 – Corporate Finance

HLAM received 4 Lipper fund awards in FY19, namely:
  • Hong Leong Dividend Fund: Equity Malaysia Income – Malaysia Pension (3 years)
    (for the 2nd consecutive year);
  • Hong Leong Dividend Fund: Equity Malaysia Income – Malaysia Pension (5 years)
  • Hong Leong Penny Stock Fund: Equity Malaysia – Malaysia Pension (5 years)
  • Hong Leong Balanced Fund: Mixed Asset MYR Bal – Malaysia Pension (5 years)

SUSTAINABILITY

Building a sustainable Group is about how, at the core of everything we do, we are guided by our principles to make the right decisions that will hold us in good stead today and in the future. We think about this in a variety of ways. First, it is important to maintain focus on operational excellence and efficiency. We have made continued progress towards this end whilst investing in new business initiatives and technologies.

Sustainability also includes having the right governance. We have a diverse and experienced Board of Directors that provides independent oversight. Our Board constantly looks for ways to further strengthen corporate governance standards and adopt international best practices to improve.

Finally, to be a sustainable company, we must value our people and give all employees the support they need to build their careers and achieve their goals. We have a diverse and inclusive workplace that reflects the diversity of the communities in which we serve. Through our recruitment programs and partnerships, we are investing in the future by bringing the best and brightest to work at Hong Leong. As we think about all the ways we pursue sustainability, our focus is to use our size and scale in ways that contribute positively to our communities, create opportunities for our customers and employees and to grow our company responsibly.

On this subject, we are pleased to report that in FY19, HLFG met the globally recognized standards for inclusion in the FTSE4Good Bursa Malaysia Index. The FTSE4Good Bursa Malaysia Index is designed to measure the performance of companies demonstrating good Environment, Social and Governance practices.

APPRECIATION

Last but not least, I would like to take this opportunity to express my appreciation and gratitude to the Board of Directors, management and staff of HLFG Group for their dedication and commitment. I would like to mention our appreciation to Ms Lim Tau Kien, who retired from the Board on 8 April 2019, and welcome Ms Leong Ket Ti and Puan Raja Noorma binti Raja Othman, who joined the Board on 8 March 2019 and 10 May 2019 respectively. Ms Leong brings with her a wealth of experience and expertise in financial services and Puan Raja Noorma comes with a notable banking and capital markets background and overseas experience.

My sincere appreciation also goes out to our regulators, shareholders, customers and business partners.

 

QUEK LENG CHAN
Chairman

11 September 2019