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Group President & CEO’s Statement

Dear Shareholders,

When I began to pen down my thoughts for this letter, it was early January 2015 and New Year messages were still flowing in. My colleagues and I returned back to the office with a sense of renewed hope that the solidarity we found as a nation and as global citizens following the tragedies we saw in 2014, would give us greater strength in 2015.

For all of us at the Maybank Group, the challenges of 2014 further clarified our purpose as an organisation, the reason why we exist. Our mission of “Humanising Financial Services” means that our customers and communities are the focus of our operations and would also be the source of long-term creation of shareholder value. Indeed, our customers have been the Group’s most important asset, standing by us through the Maybank Group’s journey. We have achieved the market positioning that we have today due to their continued support and belief in us.

“Our customers have been the Group’s most important asset, standing by us through the Maybank Group’s journey. We have achieved the market positioning that we have today due to their continued support and belief in us.”

PUTTING CUSTOMER EXPERIENCE AT THE FOREFRONT

As we had shared in our report to you last year, the Group had undertaken a reorganisation to realign with our regionalisation agenda. One of this, was the reassignment of our then Group Service Quality Management directly under my office. Since then, we have expanded our focus from Service Quality to Customer Experience, which effectively means we look beyond service quality measures and instead, focus on ‘how’ we can improve customer experience in every manner. One of the most important objectives of this, is to ensure that our customers get the value that they expect, and for us to deliver them in a cost effective manner. We believe that when the needs of our customers are taken care of, the needs of our shareholders will be taken care of automatically.

Allow me to share some specific references to this. As a regional financial services leader, we need to be able to provide consistent customer experience in fundamental areas such as complaints handling. We previously used to have several in-country models around this. However, last year we introduced a regional complaints handling framework to support a standardised way of handling customer complaints across the Group. The framework aims to use feedback provided by customers as a potential source for service recovery and even as insights to help form new products and services. Moving forward, the complaints handling framework currently in place in Maybank Singapore, Maybank Philippines and PT Bank Internasional Indonesia (BII Maybank) will be further enhanced in this manner.

Beyond mere customer satisfaction, we have seen firsthand how keeping our customers close has transformed our organisation. As we saw our clients becoming more active across ASEAN, it spurred us to deliberately transform ourselves from a Malaysian commercial banking group to a regional financial services group. When we started this journey, the Maybank Group was more product-focused. Now this is increasingly changing to one that is more solution-focused. For example, five years ago we created the Client Coverage team under Global Banking to be our main contact points for our corporate clients in Malaysia and the region. Through Client Coverage, we are able to map our clients’ specific requirements and customise solutions to fit their goals, and service them across a regional network. Going forward, our aspiration is to improve our allocation of resources to cater to more customer segments within the corporate space.

In Indonesia, our BII Maybank operations has also adopted various initiatives to improve its customer service experience. The focus is very much on improving skills and knowledge of front line teams, as well as employees’ awareness of service ownership. BII Maybank was also ranked number one for five consecutive years since 2009/2010 by Indonesia’s Institute of Service Management Studies and another noteworthy award it received was the Excellence Service Experience Award 2014.

Maybank Singapore serves as one of our centres of excellence for customer experience at branches around the region. Through various initiatives introduced in 2014, the average waiting time for counter services was reduced by half between January and December 2014 while metrics at the contact centre improved with the percentage of calls answered within 20 seconds quadrupling during the year.

No mention of our customer experience would be complete without highlighting the role of technology. We are the largest online banking provider in the Malaysian market and we are fully committed to being a digital lifestyle banking site, giving customers the convenience they seek of being able to bank with us anytime, anywhere. We are constantly seeking ways to improve your experience with us through our M2U and Regional M2U. Please continue to be our advocate and provide feedback to us so that we can continuously improve.

STAYING FOCUSED, AND DELIVERING VALUE FROM OUR FRANCHISE

Despite a challenging 2014, your Company continued to deliver on key strengths arising from its strong franchise built over many decades and the talent of more than 47,000 Maybankers. As we navigated the challenges of 2014, we maintained our leadership across all our business pillars. In Community Financial Services (CFS), we have integrated the retail banking sectors of our key markets to enable cross-region initiatives that will drive our regionalisation aspirations, which include the setting up of regional centres of excellence for certain business segments.

Global Banking, under the appointment of Amirul Feisal Wan Zahir as the new Group Head effective 1 October 2014, continued to improve its coverage model across the region, securing 16% more key regional deals in 2014 from the previous year. Global Banking also strengthened its regional business models for all business lines such as investment banking under Maybank Kim Eng (MKE), Global Markets, Transaction Banking and Asset Management Group. Our International Banking pillar also recorded higher net operating income and gross loans contributions to the Group due to our growing traction in ASEAN and in Greater China.

We continued to dominate the General Insurance and Takaful market in Malaysia, with a market share of 12.3%. We have seen contributions from regular premiums to our Life and Family business grow in line with our emphasis to target more recurring income, with contributions now at 52.4% against 48% in 2013 for the Life & Family business.

Looking at our overall performance, income for our business pillars such as CFS, Global Banking, International Banking, and Insurance and Takaful rose year-on-year (YoY), with Global Markets and Investment Banking displaying stable income performance notwithstanding slower capital market activity. Almost all business lines recorded higher fee-based income YoY, with Insurance and Takaful and Corporate Banking growing at 33.8% and 21.5% respectively.

Against this backdrop, Maybank was able to achieve a net profit of RM6.72 billion for the financial year ended 31 December 2014 (FY2014) – the highest in our history and 2.5% higher than last year’s record breaking performance. Our net fund based income grew 5.9% as Group gross loans growth came in at 13.4%, ahead of our target of 13.0%. A key driver of our strong loans growth was our international markets such as Greater China and Singapore, which performed remarkably with loans growth of 33.9% and 13.3% respectively.

The robust growth in our international portfolio has translated to a 9.5% increase in its net fund based income, pushing overall International net operating income up 6.5% and increasing its contribution to the Group’s net operating income. Group deposits rose 11.1% with key home markets Singapore and Malaysia contributing growth of 16.5% and 7.4% respectively.

Our overall net fee-based income was lower YoY as we came off a higher base in 2013. Thus, our net operating income remained flat in FY2014 but we did well in managing our overheads growth for the year, which only increased by 2.1%. Earnings per share was 74.2 sen for FY2014.

We are comfortable with the strength of our capital ratios, with CET1 at 11.75% and total capital at 16.24%. Although we initially guided for a return on equity (ROE) of 15.0% for FY2014, we provided a revised guidance ranging from 13.0%-14.0% midway through the year after a slower first half arising from subdued capital market activity and slower lending activities in Malaysia and Indonesia. We experienced a pick-up in both areas in the second half of the year, helping us achieve a full year ROE of 13.8%.

BUILDING STRENGTH THROUGH OUR INTERNATIONAL OPERATIONS

We have had some standout business performances this year, under the respective leaderships of Datuk Lim Hong Tat, who double hats as the Group Head for CFS and CEO of Maybank Singapore, and Pollie Sim, who is the CEO of our International operations. In anticipation of the regional economic integration under the ASEAN Economic Community (AEC) this year, Datuk Lim, Pollie and their teams have worked hard to ensure that we are ready to serve an enlarged community of some 600 million people under the AEC. We achieved better synergies through our regional framework and recorded higher revenues from the cross-selling of products and solutions to our corporate clients.

In Singapore, Datuk Lim and his team were able to balance the expansion of our asset base and successfully manage our funding needs in Singapore. Our loans book expanded by 13.3%, on the back of higher contributions from the consumer and commercial segments. The growth in consumer loans of 15.3% was led by an increase in housing loans while commercial loans expanded 12.3% arising from demand in the commercial segment. Our deposit base in Singapore also expanded 16.5%, as fixed deposits and CASA grew 18.1% and 12.1% respectively. In line with our regionalisation initiatives, we also expanded our Insurance and Takaful presence through the Etiqa brand, with the introduction of Etiqa in the Singapore life insurance market.

FY2014 also marked the first full-year of operations for Maybank’s Regional Private Wealth business for High Net Worth customers, centred in Singapore. In its maiden year, the business achieved Total Financial Assets from both Assets under Management (AUM) and lending of RM13 billion. Of this amount, RM4 billion was new-to-bank assets, which is an indication of the value creation potential of this new business.

Our regionalisation efforts in providing cross-border solutions and capturing trade flow between the ASEAN region and China have also expanded through our international operations, led by Pollie. In what was a major milestone, we have been able to secure a banking license in Myanmar, strengthening our regional presence and our ability to serve customers seamlessly throughout the region. Our foray into Myanmar will enable us to facilitate cross-border trade, not only in our core markets but also the Greater Mekong Subregion.

Myanmar helps us strengthen our Indochina presence, which also includes markets such as Cambodia, Vietnam and Laos. In Cambodia, not only did we add five new branches to improve coverage of Phnom Penh and enter three new provinces, we also launched our Premier Wealth services to cater to Cambodia’s growing affluent segment. We were granted the bond trading license in Vietnam and our Laos operations turned profitable in 2014.

Another international market that has shown strong traction in 2014 is the Greater China region, whereby we provide wholesale and investment banking services to commercial and corporate clients in Hong Kong and China. We expanded our regional footprint and opened our latest China branch in Kunming, Yunnan. On top of being the mandate lead arranger for several notable deals, another landmark achievement in our Treasury and Transaction Banking business was the appointment of Maybank as a Renminbi/Singapore dollar Market Maker, in addition to our existing Renminbi/Malaysia Ringgit capabilities.

Pollie and her team have done a commendable job in growing the International portfolio (which excludes Singapore and Indonesia), with PBT contribution from this portfolio increasing by 32.8% YoY.

SETBACKS WE EXPERIENCED IN 2014

Amidst the successes we have had in 2014 came some setbacks that we have had to address. While almost all our international operations did well, our operations in Indonesia was affected by market conditions that impacted several corporate debtors in specific industries. We have had to make higher loan loss provisions for these corporate accounts, which have more than halved the PBT contributions from Indonesia to the Group and caused an uptick in Indonesia’s asset quality.

However, I would like to reassure our shareholders that the Group’s Executive Committee has worked alongside our BII Maybank colleagues to address these concerns. Firstly, we have re-profiled the Global Banking business with a more selective focus on clients and industries in line with the Group’s risk appetite. Secondly, to avoid further asset quality deterioration, we have tightened credit approval procedures and instituted new approval matrixes and limits to ensure tighter control over loan approvals. We are also closely monitoring market conditions that could potentially have an adverse impact on selected corporate borrowers.

I need to stress that excluding these selected corporate debtors that have affected BII’s operations, the other segments within BII Maybank have done well. For instance, BII Maybank’s consumer banking and business banking segment grew 16.0% and 15.5% respectively. The business banking segment, which is also part of BII Maybank’s non-consumer portfolio, includes SME businesses, supply chain financing and micro-financing.

Aside from an uptick in asset quality in Indonesia, we have also seen our Gross Impaired Loans (GIL) ratio for Malaysia increase to 1.85% from 1.69% a year ago. The main reason contributing to the higher GIL ratio is due to provisioning done for specific legacy business banking accounts. Despite this, we remain comfortable with our asset quality ratios against our capital position.

We are cognisant of market conditions and the need to balance growth with preservation of asset quality. Therefore, we will make the call and have done so, to not expand aggressively as and when seen fit. Our lower revision of FY2014 loan guidances for Malaysia and Indonesia during the year was one such example.

Even with the above, I am happy to point out that the Group registered a record profit for FY2014. This is a testament of the balance and the quality of the portfolio of the businesses within the Group, which we intend to protect as we progress further with our regionalisation efforts.

OUR OUTLOOK FOR 2015 & HEADLINE KPIs

The start of 2015 was slightly unsettling with the volatility seen in the commodity and currency markets. The long term impact of these roiling markets will depend on how long the volatility lasts. What we do expect, however is a mixed bag of opportunities and some challenges ahead in the markets we operate in. With Malaysia taking over the chairmanship of ASEAN this year, our regional business focus will continue to serve us well as we seal our position as a truly ASEAN financial services group. We expect further benefits to arise with the introduction of Qualified ASEAN Banks in due course under the ASEAN Banking Integration Framework.

In my letter to shareholders last year, I spoke about assuming the right risk posture to balance our capital needs and provide an optimum return for our shareholders. With this in mind, the Group has embarked on a capital efficient strategy, which will drive more productive use of our capital over the medium to longer term. The need to be capital efficient is even more critical now as we ready ourselves for additional capital buffer requirements that will be introduced in time for domestic systemically important banks.

As with FY2014, we will remain steadfast in our strategic cost management programme to ensure that we manage our overheads growth in a comfortable range vis-à-vis our net operating income growth. Some of the cost levers that we will actively manage include IT expenses, marketing expenses and general and administrative expenses. Within this programme, we will continue to drive productivity improvements, as we seek to improve our profitability over cost ratio per employee.

With these considerations in place, our guidance for FY2015 on key performance indicators are:

Return on Equity 13%-14%
Group Loans Growth 9%-10%
Malaysia Loans Growth 8%-9%
Singapore Loans Growth 8%-9%
Indonesia Loans Growth 13%-15%
Group Deposits Growth 9%-10%

APPRECIATION

I wish to thank all Maybankers for their commitment and contribution to the performance of the Group in the last year. I would also like to extend my deepest appreciation to our customers and shareholders for their continued trust, loyalty and support rendered in what has been a somewhat challenging year.

I am also grateful for the valuable guidance provided by the members of the Maybank Board and those of the other entities within the Group, as well as the regulatory bodies in all the countries we operate in.

Thank you.

Our Maybank, Our Future.

Datuk Abdul Farid Alias
Group PCEO