Maybank Group today announced its financial results for the half year ended December 31, 2008 and unveiled a rights issue proposal of up to RM6.0 billion as a key component of its strategic transformation plan to strengthen capital and as a foundation to strongly position the Group for future growth and greater market leadership.

The core commercial banking franchise of the Maybank Group remained strong overall, showing continued profitability and sound asset quality. Whilst net interest income increased by 3.2% to RM2.81 billion, the Group recorded profit after tax of RM1.31 billion for the first half of the financial year, lower by 11% compared with the same period last year. The results for the half year were impacted by a lower contribution from the international banking, investment banking and insurance operations, given economic challenges both domestic and in the region.

Notwithstanding the lower profit, the underlying banking operations of the Group grew steadily with revenue across almost all business segments increasing to RM8.46 billion, an increase of 6.8% compared with the same period last year. The Group's Islamic Banking operations showed exceptional growth of 38%, underscoring the Group's leading position as the largest Islamic financial services provider in Asia Pacific.

The Group also announced today its strategic transformation plan and announced a rights issue of up to RM6.0 billion, which upon successful completion positions Maybank as one of the best capitalised banks in Asia with a proforma risk weighted capital ratio of 16.4%. The rights issue will support the Group's aspiration to be among the top 5 banks in South and South East Asia by size and performance by 2015. The strategic transformation plan is aimed at:

• Strengthening core business and franchise to achieve globally benchmarked operating metrics and improve synergies across the Group
• Enhance capital base via a rights issue and
• Putting in place an organisational structure to provide flexibility to realign capital allocation and management resources across the group. This includes the proposed eventual establishment of a financial holding company structure subject to regulatory and tax considerations and other financial implications and the formulation of an implementation plan.

Financial Performance as at 1H09

• Continued Profitability

Profit after tax and minority interest totalled RM1.31 billion for the six months ended 31 December 2008, 11% lower than the RM1.47 billion recorded in the previous financial year ended December 2007.

The results include the first consolidated profit after tax of PT Bank Internasional Indonesia (BII) of RM36.2 million.

Group profit before tax for the period was RM1.84 billion compared with RM2.05 billion in the previous corresponding period.

On a quarterly basis, profit before tax for October - December 2008 (2Q09) stood at RM960.3 million compared with RM881.8 million in the preceding July-September 2008 quarter (1Q09), while net profit was RM734.6 million compared with RM572.2 million.

The Group results translate into an annualized net return on equity of 13.2% while earnings per share for the period stood at 26.8 sen.

Net income for the half year grew by 6.5% to RM4.68 billion. Income from Islamic banking operations rose 38% driven by strong demand for Islamic automobile and securities financing, as well as a 28% growth in income from investment and 84% increase in income from deposits and placements.

Net interest income rose 3.2%, mainly from growth in loans, advances and financing, as well as improved lending margins contributed by the recent acquisition of BII. The Group's loans, advances and financing registered an increase of RM18.2 billion or 21.2% on an annualized basis for the half year. BII contributed RM12.17 billion in loans upon consolidation.

Non interest income for the half year recorded a growth of 3.4% driven by transactional income of the key customer franchise of 11.2%.

Overheads, however, increased 27.2% over that of the previous corresponding period arising from higher personnel costs as well as increase in IT, administration and general expenses, primarily due to the consolidation of BII. Excluding BII, overheads increased by 15.6%.

• Stronger Franchise with Continued Growth in Loans & Financing

Despite the difficult environment, the Group continued to record steady loan growth of 21% for the half year, including that of BII. Excluding BII, the Group recorded a loan growth of 7%.

For the Malaysian operations, annualised loan growth for the half year stood at 6.3%, supported mainly by increases in hire purchase and corporate loans. Business loans rose 6.5%, driven by strong corporate loan growth of 20.8%, off-set by a contraction of SME loans by 11.4%. Consumer loans grew 6.1% mainly as a result of growth in mortgages (+2.7%), hire purchase (+9.1%) and credit card receivables (+23.4%).

Financing via Islamic instruments showed an even commendable growth of 14.2% on an annualized basis during the half year owing mainly to a 38% growth in automobile financing and a 13.5% rise in home financing.

Loan growth for international operations increased 58%. This was driven by 85% from BII with Singapore registering growth of 8.3%, slower compared to previously, given the economic slowdown. International operations contributed 33.6% of total Group loans, higher than the 27.6% as at December 2007.

The net interest margin on interest earning assets improved to 2.71% in 2Q09 from 2.5% in 1Q09 due to wider spread enjoyed by BII and reduction in cost of funds. Lending spreads have also stabilised in the last three quarters.

Revenue from Corporate banking grew 24% on higher loan growth of about 30% while revenue from Business banking rose 10.7% on the back of steady net interest income and higher fee based income especially from trade financing, cash management and factoring. Revenue from Consumer banking grew 1% and Insurance by 4.4%. Investment Banking & Treasury saw revenue growing 8%, and International banking by 59%.

On the three acquisitions in Indonesia, BII reported a 36% increase in full year profit after tax to 480 billion Rupiah from 353 billion Rupiah in the previous corresponding period while MCB Bank of Pakistan showed a marginal decline of 0.2% in profit after tax for FY 2008 to PKR24.33 billion from PKR24.37 billion previously. The profit before tax of An Binh Bank of Vietnam decreased to VND 70.2 billion from VND230.8 billion previously.

• Sound asset quality

Asset quality remained strong. The Group continued to focus on ensuring robust risk management to preserve asset quality. The net NPL ratio further improved to 1.8% as at December 2008, below the industry average of 2.4%, compared with 2.69% in December 2007 and 1.92% in June 2008.

Loan loss coverage remained at a high level of 99.8% as at December 2008 compared with 83.6% in the previous corresponding period.

Customer deposits for the Group grew 20.8% on an annualised basis mainly due to the consolidation of the results of BII as well as growth in money market and structured deposits. Domestic deposits also grew by 9.0% to RM139.7 billion. The CASA franchise remains strong at 36.3% of total deposits.

The risk weighted capital ratio of the Bank and the Group as at December 2008 stood at 10.19% and 13.54% respectively. Despite its strong capital position, the Group is intent on its pursuit to further strengthen its capital for future growth by proposing the rights issue.

Strategic Transformation

• Rights Issue to Strengthen Franchise and Accelerate Growth, Supporting the Group's Strategic Transformation Plan

The Group today announced a renounceable, fully underwritten rights issue of up to RM6.0 billion on the basis of 9 rights share for 20 existing shares which will provide sufficient capital to implement the Bank's key strategic initiatives for the next three to five years. Upon successful completion, Maybank will see its pro forma consolidated Core Tier 1 ratio strengthen to 8.1% whilst its Tier 1 ratio will rise to 11.0%, compared with 5.2% and 8.1% respectively as at 31 December 2008.

The rights issue is the next step in Maybank's strategy of transformational growth to become a leading regional financial services group. Apart from enhancing balance sheet and capital ratios, the rights issue widens Maybank's competitive positioning, enabling the Group with the means to reinforce its domestic and regional franchise as well as accelerate growth for the future.

Priorities include capturing value from the acquisitions of BII and MCB. Recent progress includes strengthening key management positions at BII and leveraging on the BII and MCB franchises to develop fee-based business including investment banking.

Maybank has to date raised RM3.5 billion in non-innovative Tier 1 capital, RM2.5 billion in innovative Tier 1 capital and RM3.1 billion in lower Tier 2 capital in line with the Group's capital management strategy to ensure higher capitalisation.

The Group has appointed Maybank Investment Bank, Goldman Sachs and Credit Suisse as lead managers for the rights issue.

• LEAP30 - Performance Improvement Update

In November 2008, Maybank launched LEAP30, its performance improvement plan, taking the Group through a strategic transformation journey to secure undisputed domestic leadership and realise its aspiration to become a leading regional financial services group. The LEAP30 programme will help pave the way for clear market leadership in Malaysia across all high margin and profitable product segments, strengthening Maybank's regional and international presence with a target of 40% of gross loans derived from international operations, and to position the Group as a talent and execution-focused company, being a top-quartile employer of talent in each of Maybank's markets.

Recent progress includes plans to uplift consumer sales by 50%, with a 15% sales uplift captured in the first year of launch and deepening of the share of corporate banking business with a profit before tax uplift of RM26 million expected in six months. Other initiatives which have made significant progress include the reduction of procurement costs with a capex cost avoidance reduction of RM60 million for property and RM84.6 million through streamlining of IT project resources. LEAP30 is also currently putting in place critical infrastructure and capability enablers to propel Maybank's growth over the next 3-5 years. These include: an enhanced human capital platform, new centralised capabilities, and a new group-wide management information system.

Prospects

Malaysia's economic growth is expected to decelerate in 2009 as regional economies begin to suffer from the effects of recession in the major industrialised economies. The worsening contraction in Malaysia's industrial and export data suggest that GDP growth in 2009 could be slower than the current government forecast of 3.5% and has thus heightened the risk of a recession in 2009. As such, the operating environment for the banking industry is expected to become more challenging due to slower consumer spending and reduced corporate capital expenditure, leading to prospects for slower loans growth and deterioration in asset quality, with margins also expected to be under pressure due to continued intense competition. Prospects for capital markets and insurance business will be similarly challenging.

Maybank will continue to focus on growing its market share through improvement in retail banking operations through continued upgrading and expansion of its network franchise, sales, branding, and competitive product offerings as well as leveraging on its recently revamped internet banking platform. With the recent key management appointments and progress of the LEAP30 performance improvement programme, the Group expects improved execution of business, enabling and talent initiatives to enable Maybank to better compete in the tougher operating environment.

Emphasis will be on prudent risk management practices and asset quality management to contain any risk of deterioration in asset quality in the economic downturn. Maybank will also continue to increase contribution from the Group's overseas operations with particular focus on integrating BII into the Group to extract value from synergies.

Against a backdrop of the weakening economic and operating environment and with recent acquisitions yet to be earnings accretive, the Group expects net profit for the current financial year ending 30 June 2009 to be lower than the previous financial year.

In summary, Maybank continues to meet the challenges associated with the current environment and is proactively addressing them. We believe that together with the transformation effort made within the context of the Strategic Transformation Plan, we can achieve our goal of enhancing long-term shareholder value.

Comments from Maybank Chairman Tan Sri Mohammed Basir b Ahmad

"The economic and financial challenges that are confronting us today compel us to seek new opportunities for growth, harnessing our resources from within to change the way we operate in the past and move into the future with renewed vigour to build on our leadership strengths and gain new markets.

Despite the gravity of the economic situation globally, we are confident that our sound financial framework will enable us to register sustainable growth in our core franchise, leveraging on our domestic strengths as market leader and our regional footprint which maps out our key markets of growth."

Comments from the President & CEO Dato' Sri Abdul Wahid Omar

"We envisage a tougher operating environment in the coming months. This is indeed a call for us to ensure aggressive implementation of our performance improvement programme LEAP30. We have since re-prioritised some of our medium term initiatives in view of the changes in the financial and economic landscape. We are pleased with the progress thus far, and we are in fact, beginning to see some early benefits and quick wins."

Our transformation journey and capital raising efforts to reinforce our financial strengths are intrinsic to us achieving our aspiration of being a leading regional financial services group by 2015. The higher capitalisation gives us the support to intensify our growth path and capture more value from our recent regional acquisitions."