Reflections From Our Group Chief Financial Officer

Amidst an environment of heightened volatility in the global economic backdrop, we achieved yet another record-setting full year performance in FY2018. This did not come without its challenges against many key events in 2018 such as continued volatility in oil prices, dampened trade sentiment given escalating trade tensions between the US and China, the rising interest rate environment and slower loans growth in some ASEAN markets. While Maybank Group maintained a more conservative risk posture throughout 2018, we grew selectively without compromising on the pricing of our assets and liabilities.


Disciplined cost reduction of 1.0% YoY in Group’s overheads, led to cost-to-income ratio of 47.4%

Proactive asset quality management culminates in net credit charge off rate of 32 bps

Selective risk-based balance sheet growth with Group loans and deposits expanding 4.8% and 5.6% respectively

Effective liquidity management with robust liquidity coverage ratio of 132.4%

Full year dividend per share of 57 sen results in dividend payout ratio of 77.3% for FY2018

Analysis of income statement for FY2018
  • 1 Pre-provisioning operating profit (PPOP) is equivalent to operating profit before impairment losses
  • 2 Net profit is equivalent to profit attributable to equity holders of the Bank

Record profit achieved despite more challenging environment

  • Net fund based income grew 3.1% YoY as we expanded our loan portfolios across our home markets, leading to a Group loans growth of 4.8% YoY. However, the growth in net fund based income was constrained due to lower Group net interest margin (NIM) of 3 bps to 2.33% in FY2018.
  • The mildly weaker NIM YoY was due to our strategy of increasing liquidity buffers in the first half of the year, ahead of Malaysia’s General Election in May, in line with our prudent risk management practises to ensure that we are able to serve our regional clientele at all times. Post general election, some of these costlier excess deposits were then released throughout the second half of 2018.
  • Net fee based income declined by 1.8% YoY due to lower investment and trading income, affected by weaker equity markets in FY2018. The overall decline in net fee based income was partly moderated by higher net earned insurance premiums from our insurance business amidst stronger sales for life and family as well as general products.
  • Net operating income, or revenue, was higher by 1.7% to achieve a new high of RM23.63 billion on the back of higher net fund based income.
  • Meanwhile, overhead expenses declined by 1.0% YoY, mainly from lower establishment costs and administrative and general expenses. Our FY2018 cost-to-income ratio was 47.4%, better than the Group’s guidance of 48%.
  • Due to income growth and contracting overhead expenses, pre-provisioning operating profit grew 4.2% to RM12.42 billion.
  • Net impairment losses reduced by 20.5% to RM1.61 billion, on lower new impaired loan volume formation.
  • As a result of higher income growth, reduced overheads and net impairment losses, our full year net profit grew 7.9% to RM8.11 billion in FY2018.
  • This enabled a return on equity (ROE) of 11.4%, exceeding the Group’s Key Performance Indicator (KPI) of 11% for FY2018.
  • We also rewarded shareholders with a total dividend of 57 sen per ordinary share, equivalent to a total dividend payout ratio of 77.3%.
Balance Sheet

Group loans growth driven by growth in home markets

  • Our Group loans grew by 4.8% YoY or 5.0% on a normalised basis, after excluding currency conversion effects, and was supported by growth across our three home markets and our other international markets.
  • Our three home markets – Malaysia, Singapore and Indonesia – expanded by 4.8%, 4.5% and 7.0% respectively. In Malaysia, our growth was driven mainly by the consumer and retail SME portfolios, which recorded growth of 6.8% and 14.9% respectively. The consumer portfolio was supported by growth in mortgage financing at 8.2% due to loan stock drawdown and our strategic partnerships with established developers as well as auto financing growth of 4.7% for preferred car brands. Meanwhile, retail SME grew at 14.9% on higher term loans and overdraft disbursements.
  • The Malaysia business banking portfolio has seen a 3.9% YoY decline as we continued to de-risk this portfolio, which included write-offs and some recoveries. Meanwhile, our Global Banking portfolio did see growth slow to 1.7% on the back of sizeable repayments, selective disbursements on pricing discipline and slower disbursements in some specific industries.
  • In Singapore, our loan growth of 4.5% YoY was supported by growth of 6.7% in Global Banking and 2.6% in Community Financial Services (CFS). Expansion in the Global Banking portfolio was led by syndicated and bilateral term loan disbursements while the CFS growth was led by retail SME, business banking and auto financing.
  • For Indonesia, its expansion of 7.0% YoY was attributed to both its CFS and Global Banking portfolios. The CFS portfolio grew 7.2% on the expansion of the business banking, retail SME, auto financing and credit card portfolios. Global Banking increased 6.8% owing to disbursement to state-owned enterprises and financial institutions.
  • We remained committed with our stance to be capital efficient and managed our risk-weighted assets (RWA) through RWA optimisation initiatives. As such, our Group credit RWA declined 1.7% despite Group loans growth of 4.8%.

CASA expansion supported customer deposit growth

  • The Group’s total deposits grew by 5.6% YoY to RM556.3 billion in FY2018, on the back of current account and savings account (CASA) deposits and other deposits growth in Malaysia. Meanwhile, in the other home markets, the deposit base in Singapore remained stable at SGD46.2 billion while deposits in Indonesia contracted 3.7% YoY to IDR117.0 trillion.
  • CASA growth of 4.2% in Malaysia was achieved through targeted segment-based campaigns for our mass and affluent customers while we managed our liquidity needs by attracting other deposits such as money market deposits.
  • In Singapore, CASA deposits remained relatively stable as corporate account withdrawals arising from working capital needs throughout the first nine months of the year were mitigated by on-boarding of new CASA accounts in the fourth quarter.
  • Meanwhile, CASA in Indonesia contracted on the back of intense deposit competition, as consumers took the opportunity to convert savings accounts into fixed deposits in a rising rate environment.
  • Although Group CASA grew 1.8% YoY, the Group CASA ratio was lower at 35.9% from 37.3% a year ago due to the stronger growth in other deposits.
  • As part of our conscious effort to minimise NIM compression, we shed costlier fixed deposits across all our three home markets.

Preserving asset quality through proactive risk management

  • Our allowance for losses on loans have reduced by 18.8% YoY to RM1.59 billion for FY2018 on lower new impaired loan volume formation of 13.3% or by RM942.60 million YoY. As such, our net expected credit losses (ECL) provided under Malaysian Financial Reporting Standards 9 (MFRS 9) is RM1.87 billion compared with the RM2.34 billion provided as total net collective and net individual allowances in FY2017 under MFRS 139. This resulted in our FY2018 net credit charge off rate of 32 bps, lower by 8 bps from a year ago. Our loan loss coverage has improved to 83.6% from 71.5% as at end December 2017, arising from an increase in balance sheet ECL allowance for loan loss provisions as a result of the adoption of MFRS 9 effective 1 January 2018.
  • Our Group Gross Impaired Loan (GIL) ratio remained relatively stable YoY at 2.41% from 2.34% in the previous year due to recoveries and some write-offs for older impaired accounts, despite some new corporate impairments made in our home markets for 2018.
GIL Ratio by Group and Home Markets

The Group’s approach to managing capital is set out in the Group Capital Management Framework, Group Capital Contingency Plan and Group Annual Capital and Funding Plan, all of which are formally reviewed and approved by the Maybank Group Board. The Group also complies with Bank Negara Malaysia’s (BNM) Capital Adequacy Framework (Capital Components). Details on this and on our capital framework as well as plans are elaborated under the Basel II Pillar 3 Disclosure made available on our website.

Our medium and long-term capital and funding initiatives are undertaken yearly in view of our three-year Group Capital and Funding Plan. The plan seeks to optimise and maintain strong capital and liquidity positions to meet various stakeholder expectations, which include regulators, debt and equity investors and rating agencies.

Our funding profile not only focuses on diversification and a balanced mix, but that we maintain optimal funding cost and long-term funding stability. Our strong franchise and digital platforms provide accessibility to various funding sources across retail and wholesale channels, tenures, currencies, products, markets and investor base.

Funding and liquidity profile is stable and well-diversified

  • From our agile funding strategy, we were able to maintain healthy liquidity risk indicators, with liquidity coverage ratio (LCR) at 132.4% as at 31 December 2018, above BNM’s minimum LCR requirement of 90.0% for 2018. In addition, our other liquidity indicators such as loan-to-deposit ratio, loan-to-fund ratio and loan-to-fund-and-equity ratio remained stable at 92.7%, 86.2% and 76.1%, respectively as at 31 December 2018.
  • As part of the daily liquidity management, the Group monitors intraday liquidity to ensure the smooth functioning of its payment and settlement processes. Our liquidity management initiatives to ensure sufficient liquidity to support business functions include:
    • Managing both short-term and long-term cash flows via maturity mismatch reports and indicators such as the LCR and net stable funding ratio (NSFR);
    • Diversifying funding sources such as currencies, customer types and market segments to ensure a healthy funding mix. This includes managing depositors’ diversification to avoid overdependence on chunky depositors;
    • Managing the funding structure to optimise the funding cost;
    • Maintaining an appropriate mix of high quality liquid assets and adequate liquidity buffers to meet any unexpected cash outflows;
    • Conducting regular stress testing to assess cash flow vulnerability under stressed situations and deploy the necessary action plans; and
    • Maintaining a recovery plan in responding to liquidity disruptions under stressed conditions.
  • Meanwhile, BNM has announced the deferment of the NSFR to 2020.

Robust capital base maintained

  • Our capitalisation levels remained healthy with our Group CET1 Capital Ratio and Group Total Capital Ratio at 15.029% and 19.024% respectively, as at 31 December 2018. Assuming an 85% reinvestment rate under our Dividend Reinvestment Plan (DRP), Group CET1 Capital Ratio and Total Capital Ratio would be 14.512% and 18.506% respectively.
  • The Group maintains a robust risk adjusted performance management framework to ensure capital is allocated and utilised efficiently based on risk profile, business needs and regulatory requirements. Aside from managing our business as usual functions, we also have a formalised mechanism to manage capital, funding and liquidity under the Group Recovery Plan to cater for an extreme stress scenario. Various external and internal indicators are actively tracked via established committees to ensure that identified stress events are escalated and addressed promptly.
  • Our capital initiatives for FY2018 included our ongoing DRP which resulted in the issuance of 104,486,785 ordinary shares that raised about RM0.9 billion under the 17th DRP. In addition, we also issued Maybank’s USD15 billion Multicurrency Medium Term Note programme to allow for Basel III-compliant Additional Tier 1 capital securities issuances. This will enable us to further diversify our foreign currency capital sources and broaden our debt securities issuance range for Tier 1 capital, Tier 2 capital and senior notes.
  • The Group also provided capital support to its subsidiaries namely PT Bank Maybank Indonesia and for the local incorporation of Maybank Singapore Ltd in FY2018.

Value creation for our shareholders

Value creation for our shareholders

  • The shareholders were rewarded with an interim single tier dividend of 25 sen per ordinary share for FY2018, which comprised a cash portion of 15 sen and an electable portion of 10 sen.
  • The Board has recommended a final single tier dividend of 32 sen per ordinary share, comprising 15 sen cash and 17 sen electable. As such, total dividend for FY2018 is 57 sen, equivalent to a payout ratio of 77.3%, above our Group’s dividend policy.
  • We are committed to delivering long-term value for our shareholders by maintaining the long-term dividend policy of 40% to 60%. We continue to emphasise on maintaining a strong effective cash dividend payout, as seen since FY2017, as part of our commitment in meeting shareholders’ expectations for strong returns while managing the Group’s capital effectively.
  • Our effective cash dividend paid out in FY2018 was 46.3%. It was lower than the 57.2% paid out in FY2017, as the final dividend for FY2017 was paid out fully in cash on the back of the cancellation of the 16th Dividend Reinvestment Plan (DRP) for the final dividend of FY2017. The Board decided to cancel the 16th DRP as it viewed that a full cash dividend would provide better shareholder value given softer equity markets. The decision was made in line with the Group’s objective to maximise total shareholders’ value.
NIM trends in rising rate environment
A rising rate environment in Malaysia and Singapore would typically result in Group NIM expansion, due to asset re-pricing coupled with our continued ability to secure a higher proportion of current accounts and savings accounts. However, we made a decision to increase our liquidity positions ahead of Malaysia’s General Election in May 2018, as part of our prudent asset-liability and risk management practises. The increase in fixed and other short-term deposits resulted in NIM compression, as our interest expense growth rose faster than our interest income growth, but the impact was mitigated towards the end of the year as we released costly fixed deposits.
Impact of policy changes by new Malaysian government post General Election
Zero-rating of the goods and services tax from June to August 2018 bode well for overall consumer consumption while the government’s review of large infrastructure and construction projects saw slower growth in these corporate lending segments. Fiscal reforms and revenue enhancing measures announced under Budget 2019 were balanced, with incentives addressing affordable housing needs, supporting SMEs and promoting technology adoption.
Changes arising from MFRS 9 adoption and outlook on asset quality
Maybank Group adopted MFRS 9 on 1 January 2018, whereby impairment assessments are made on the expected credit loss model using forward looking assumptions. The Day-1 impact to the Group’s capital ratios arising from MFRS 9 adoption was manageable, with the ratios decreasing between 33 and 34 bps. The Group continues to maintain its cautious risk appetite for high-risk sectors such as oil and gas while prudently providing allowances for loans or financial investments of borrowers displaying weakness, as per MFRS 9 requirements.
Dividend policy and capital management
Our dividend policy remains between 40%-60% and we continue to retain the dividend reinvestment plan (DRP), as an effective capital management tool to manage our equity growth vis-à-vis risk-weighted asset growth. As part of our commitment to improve shareholder returns in line with our capital management strategy, we will continue to provide strong effective cash dividend payout to shareholders under the DRP (refer to the dividend payout chart).
Digital strategy
As the competitive banking landscape continues to be redefined by FinTech players and digital enablers, our digital focus of becoming The Digital Bank of Choice is to facilitate services through our multiple digital platforms in a fast, easy and safe manner for our customers. This digital strategy also extends beyond our customer offerings as we look to future-proof our employees through upskilling initiatives and leveraging technology to improve internal systems and process efficiencies.
Singapore local incorporation
The Singapore local incorporation which was completed on 5 November 2018, entailed the transfer of our CFS business from the existing Maybank Singapore Branch to the newly incorporated subsidiary, Maybank Singapore Limited (MSL). MSL now operates our CFS business consisting of retail, private wealth, retail SME and commercial banking in Singapore. The Global Banking business will continue to be operated under the Maybank Singapore Branch.
Environmental, social and governance (ESG) approach, commitment and progress
Maybank Group’s Board of Directors regularly reviews the Group’s sustainability performance and strategies, focusing on ESG aspects. As part of our Responsible Lending Guidelines, we established a list of criteria to manage ESG risks. This was further enhanced with the development of an ESG Risk Management Framework, approved by the Board in 2017. The framework was formulated in alignment with global standards and practices, such as the United Nations’ Human Rights Policy, International Finance Corporation (IFC) standards and global environmental standards. Further details on our ESG commitment can be obtained from our Sustainability Report, produced annually.

Given slowing global growth and uncertainty over possible US-China trade tensions, Maybank Group will maintain its balance sheet expansion in line with the economic growths of its three home markets and in tandem with the Group’s conservative risk posture. We will continue to build on our diversified franchise and footprint to expand income streams through cross business collaborations and by focusing on diligent pricing of assets and liabilities.

Other key ongoing priorities for Maybank Group into 2019 include:

  • our emphasis to improve productivity levers and drive positive JAWs across business segments;
  • proactively manage asset quality and maintain ongoing recovery efforts;
  • prioritising capital and liquidity strength given increasingly volatile capital markets and global macroeconomic headwinds as well as to comply with regulatory requirements such as NSFR; and
  • maintain our attractive shareholder rewards payout by focusing on improving the effective cash dividend payout.

With these key ongoing priorities, we have set our Group KPI for ROE of approximately 11% in FY2019.