financial group berhadmarine takaful bhd incorporated october 2007 hlib proposed to acquire the...
TRANSCRIPT
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AN
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Hong Leong Financial Group Berhad (8024-W)Level 30, Menara Hong Leong6, Jalan Damanlela, Bukit Damansara50490 Kuala LumpurTel : 03-2080 9888Fax : 03-2080 9800
w w w. h l f g . c o m . m y
As part of Hong Leong Financial Group’s support for environmental sustainability, this Annual Report is printed on Forest Stewardship Council (FSC) certified paper and recycled paper.
ANNUAL REPORT 2018
Financial Group Berhad
Financial Group Berhad
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corporate
04 Introduction
06 FiveYearGroupFinancialHighlights
08 SimplifiedGroupStatementsofFinancialPosition
09 GroupQuarterlyFinancialPerformance
10 SegmentalInformation
11 HongLeongFinancialGroupSharePrice
12 FinancialCalendar
14 CorporateMilestones
16 AwardsandAccolades
20 Chairman’sStatement
26 ManagementDiscussionandAnalysis
36 SustainabilityStatement
49 CorporateInformation
50 BoardofDirectors’Profile
52 KeySeniorManagement
54 BoardAuditandRiskManagementCommitteeReport
57 CorporateGovernanceOverview,RiskManagement&InternalControlStatement
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FINaNcIaLS
69 Directors’Report
76 StatementsofFinancialPosition
78 StatementsofIncome
79 StatementsofComprehensiveIncome
80 StatementsofChangesinEquity
83 StatementsofCashFlows
89 SummaryofSignificantAccountingPolicies
117 NotestotheFinancialStatements
225 StatementbyDirectors
225 StatutoryDeclaration
226 IndependentAuditors’Report
aDDItIoNaL INForMatIoN231 NoticeofAnnualGeneral
Meeting
234 StatementAccompanying NoticeofAnnualGeneral Meeting
235 OtherInformation
•FormofProxy
WHAT’S INSIDe
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to be an integrated financial services group that consistently meets our customers’ needs
VISION
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HONG LEONG FINANCIAL GROUP BERHAD
04ANNUALREPORT2018
INtroDuctIoN
Hong Leong Financial Group Berhad offers an integrated suite of conventional and Islamic financial products and services which enables it to reach out and connect with customers not only in Malaysia, but throughout the region.
COMMERCIALANDISLAMICBANKING
• PersonalFinancialServices
• Business&CorporateBanking
• GlobalMarkets
• IslamicBanking
INVESTMENTBANKING
• InvestmentBanking
• Stockbroking
• AssetManagement
INSURANCEANDTAKAFUL
• LifeInsurance
• FamilyTakaful
COREVALUES
Quality Innovation ProgressHumanResource
Entrepreneurship Honour SocialResponsibility
Unity
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CORPORATE
05ANNUALREPORT
2018
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HONG LEONG FINANCIAL GROUP BERHAD
06ANNUALREPORT2018
fIVE yEAR gROUPFINaNcIaL hIGhLIGhtS
2014 2015 2016 2017 2018the Group rM’Million rM’Million rM’Million rM’Million rM’Million
Statements of Financial position
Totalassets 190,177 202,441 210,475 218,962 229,318
Netloans 103,665 113,112 120,445 124,812 128,851
Totalliabilities 173,172 182,976 187,297 193,930 202,638
Depositsfromcustomers 130,632 140,955 149,491 154,458 156,883
Shareholders’funds 11,474 13,111 15,341 16,609 17,804
Commitmentsandcontingencies 199,881 157,622 159,473 171,332 177,098
Statements of Income
Revenue 4,549 4,491 4,543 5,035 5,351
Profitbeforetax 3,009 3,023 2,565 3,090 3,579
Netprofit 2,517 2,460 2,064 2,317 2,895
Profitattributabletoownersoftheparent 1,707 1,621 1,359 1,507 1,907
Key performance Indicators
Shareprice(RM) 16.14 15.16 14.68 16.80 18.00
Bookvaluepershare(RM) 10.95 12.48 13.42 14.52 15.55
Basicearningspershare(sen) 162.9 154.3 123.2 131.8 166.8
Netdividendpershare(sen) 38.0 38.0 38.0 38.0 40.0
Financial ratios (%)
profitability ratios
Returnonequity 15.8% 13.2% 9.6% 9.4% 11.1%
Returnonaverageassets 0.9% 0.8% 0.7% 0.7% 0.9%
Cost/incomeratio 43.2% 44.5% 50.3% 44.1% 42.9%
asset Quality/Loan ratios
Grossloanstodepositsratio 80.6% 81.2% 81.3% 81.6% 82.8%
Grossimpairedloansratio 1.2% 0.8% 0.8% 1.0% 0.9%
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CORPORATE
07ANNUALREPORT
2018
fIVE yEAR gROUPFINaNcIaL hIGhLIGhtS
Group totaL aSSetS(RM’Million)
Group proFIt beFore tax(RM’Million)
Group proFIt attrIbutabLe to owNerS oF the pareNt(RM’Million)
Group returN oN eQuIty(%)
Group booK vaLue per Share(RM)
Group baSIc earNINGS per Share(Sen)
yoy +4.7%caGr = 4.9%
yoy +15.8%caGr = 6.4%
yoy +26.6%caGr = 5.1%
yoy +1.7%
yoy +7.1%caGr = 10.0%
yoy +26.6%
218,
962
3,09
0
1,50
7
9.4
14.5
2
131.
8
210,
475
2,56
5
1,35
9
9.6
13.4
2
123
.2
202,
441
3,0
23
1,62
1
13.2
12.4
8
154.
3
190,
177
3,00
9
1,7
07 15
.8
10.9
5
162.
9
229,
318
3,57
9
1,9
07
11.1
15.5
5
166.
8
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
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HONG LEONG FINANCIAL GROUP BERHAD
08ANNUALREPORT2018
SImPLIfIEd gROUP STATEmENTS OfFINaNcIaL poSItIoN
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CORPORATE
09ANNUALREPORT
2018
gROUP QUARTERLyFINaNcIaL perForMaNce
2018rM’Million Q1 Q2 Q3 Q4 year
Statements of Income
Revenue 1,279 1,366 1,386 1,320 5,351
Profitbeforetax 840 925 943 871 3,579
NetProfit 690 750 762 693 2,895
Profitattributabletoownersoftheparent 455 495 503 454 1,907
Key performance Indicators
Shareprice(RM) 16.6 17.9 19.3 18.0 18.0
Bookvaluepershare(RM) 14.9 15.1 15.4 15.6 15.6
Basicearningspershare(sen) 39.8 43.3 43.9 39.7 166.8
Dividendpershare(sen) – 13.0 – 27.0 40.0
2017rM’Million Q1 Q2 Q3 Q4 year
Statements of Income
Revenue 1,182 1,354 1,226 1,273 5,035
Profitbeforetax 726 832 764 768 3,090
NetProfit 583 664 627 443 2,317
Profitattributabletoownersoftheparent 386 443 419 259 1,507
Key performance Indicators
Shareprice(RM) 15.4 14.2 15.9 16.8 16.8
Bookvaluepershare(RM) 13.9 14.1 14.5 14.5 14.5
Basicearningspershare(sen) 33.8 38.7 36.6 22.6 131.8
Dividendpershare(sen) – 13.0 – 25.0 38.0
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10ANNUALREPORT2018
HONG LEONG FINANCIAL GROUP BERHAD
SEgmENTALINForMatIoN
operatING reveNue ByBusinessSegment
proFIt beFore taxByBusinessSegment
c 3.7%
c 2.2%
c 4.0%
c 2.7%
b 7.5%
b 9.7%
a 90.4%
a 90.7%
a 90.4%
a
88.9%
b 7.4%
b 10.9%
d -2.6%
d -1.6%
d -1.8%
d -2.5%
Fy18
Fy18
Fy17
Fy17
a Commercial Bankingb Insurance
c Investment Bankingd Other Operations/Consolidation Adj
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CORPORATE
11ANNUALREPORT
2018
HONg LEONg fINANCIAL gROUPShare prIce
Fy18 40.0 sen
FY17 38.0sen
Fy18 rM18.00
FY17 RM16.80
Fy18 rM20.7 bil
FY17 RM19.3bil
Fy18 166.8 sen
FY17 131.8sen
Fy18 11.1%
FY17 9.4%
DIvIDeND per Share yoy 5.3%
Share prIce yoy 7.1%
MarKet capItaLISatIoN yoy 7.3%
earNING per Share yoy 26.6%
totaL SharehoLDer returN yoy 1.7%
hong Leong Financial Group Share price & volume
hong Leong Financial Group Share price vs benchmark FbMKLcI
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12ANNUALREPORT2018
HONG LEONG FINANCIAL GROUP BERHAD
fINANCIALcaLeNDar
annual General Meeting 30October2018(Tuesday)49thAnnualGeneralMeeting
DIvIDeNDS
1st Interim Single-tier Dividend of 13 sen per share
aNNouNceMeNt oF coNSoLIDateD reSuLtS
2nd Interim Single-tier Dividend of 27 sen per share
30 NoveMber 2017
THURSDAY
unauditedresultsfor1stquarterended30September2017
30 May 2018
WEDNESDAY
unauditedresultsfor3rdquarterended31March2018
26 February 2018
MONDAY
unauditedresultsfor2ndquarterended31December2017
28 auGuSt 2018
TUESDAY
unauditedresultsfor4thquarterandfinancialyearended30June2018
30 November 2017
Notice
30 May 2018
Notice
18 December 2017
entitlement
14 June 2018
entitlement
28 December 2017
payment
26 June 2018
payment
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CORPORATE
13ANNUALREPORT
2018
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14ANNUALREPORT2018
HONG LEONG FINANCIAL GROUP BERHAD
CORPORATEMILeStoNeS
February 2009Insuranceholdingcompany,HLAH,wasincorporated
March 2005HLISBincorporated
July 2006Changednameto‘HongLeongFinancialGroupBhd’
april 2008HLAproposedtoacquirePJCitypremises
october 2008HLIBacquiredSBBSecuritiesSdnBhd
June 2006HongLeongTokioMarineTakafulBhdincorporated
october 2007HLIBproposedtoacquiretheidentifiedassetsandliabilitiesofSouthernInvestmentBankBhd
January 2009• HLIBobtainedinvestment
bankstatus
• HLBgrantedVietnambankinglicense
July 2008HLBacquired20%equityinterestintheBankofChengdu
october 2009HLCB1:1RightsIssuecompleted
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CORPORATE
15ANNUALREPORT
2018
CORPORATEMILeStoNeS
June 2014HLFGGroupFY14pretaxprofitsurpassedtheRM3bmark
June 2013HLASobtainedSingaporegeneralinsurancelicense
February 2010SichuanJinchengconsumerfinanceJVincorporated
october 2013HLIBawarded‘BestInvestmentBankMalaysia’(WorldFinanceAwards)
May 2011HLBacquiredEONCapitalBhd’sassetsandliabilities
october 2010MSIGStrategicPartnershipcompleted
November 2013HLBestablishedaRepresentativeOfficeinNanjing,China
December 2015HLFGandHLBcompletedRightsIssuesraisingRM1.1billionandRM3.0billionrespectivelySeptember
2012MergerofHLIB&MIMBInvestmentBankcompleted
July 2013HLBCambodiacommencedoperations
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16ANNUALREPORT2018
HONG LEONG FINANCIAL GROUP BERHAD
AWARdS &accoLaDeS
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hoNG LeoNG baNK bhD
1. MaLaySIa’S beSt baNK awarDS For exceLLeNce 2017 EuroMoney
2. beSt baNK IN MaLaySIa caSh MaNaGeMeNt cuStoMer SatISFactIoN awarD, 2017 AsiaMoney
3. beSt INNovatIoN IN retaIL baNKING MaLaySIa, 2017TheInternationalBanker
4. hIGheSt returNS to SharehoLDerS over 3 yearS – GoLD awarD, 2017TheEdge–BillionRinggitClub
5. hIGheSt returN oN eQuIty over 3 yearS – SILver awarD, 2017TheEdge–BillionRinggitClub
6. MoSt INNovatIve techNoLoGy aDoptIoN – GoLD awarD MaLaySIaN coNtact ceNtre awarDS 2017 ContactCentreAssociationofMalaysia
7. beSt SocIaL MeDIa oF a coNtact ceNtre – GoLD awarD MaLaySIaN coNtact ceNtre awarDS 2017 ContactCentreAssociationofMalaysia
8. beSt New coNtact ceNtre – GoLD awarD MaLaySIaN coNtact ceNtre awarDS 2017 ContactCentreAssociationofMalaysia
9. beSt INbouND coNtact ceNtre above 100 SeatS – MerIt awarD MaLaySIaN coNtact ceNtre awarDS 2017 ContactCentreAssociationofMalaysia
10. beSt uSe oF ceM techNoLoGy – GoLD awarD, 2017InternationalQualityandProductivityCentre
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CORPORATE
17ANNUALREPORT
2018
AWARdS &accoLaDeS
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201918
hoNG LeoNG baNK bhD (coNtINueD)
11. aSIa’S beSt FIrSt tIMe SuStaINabILIty report FINaLIStS 2017AsiaSustainabilityReportingAwards
12. aSIa’S beSt DIGItaL worKForce FINaNcIaL INSIGhtS INNovatIoN awarDS 2018 IDCFINANCIALINSIGHTS
13. MaLaySIa FINtech awarDS 2018FintechPersonalityofTheYear
14. outStaNDING coNtrIbutIoN to MyDebIt MaLaySIaN e-payMeNtS exceLLeNce awarDS 2018 PayNet
15. beSt GraDuate recruItMeNt proGraMMe – broNze awarD recruItMeNt awarDS 2018 HumanResourceAsia
16. the beSt caSh MaNaGeMeNt proJect IN MaLaySIa baNKer’S choIce awarDS 2018 TheAsianBanker
17. the beSt FINaNcIaL SuppLy chaIN MaNaGeMeNt IN MaLaySIa baNKer’S choIce awarDS 2018 TheAsianBanker
18. MaLaySIa’S beSt braND, 2018CMOAsia
19. top baNK IN the SecoNDary MarKet corporate boNDS MaLaySIa – raNK 3 aSIaN LocaL curreNcy boND beNchMarK revIew 2017 TheAsset
20. top baNK IN the SecoNDary MarKet GoverNMeNt boNDS MaLaySIa – raNK 3 aSIaN LocaL curreNcy boND beNchMarK revIew 2017 TheAsset
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18ANNUALREPORT2018
HONG LEONG FINANCIAL GROUP BERHAD
hoNG LeoNG ISLaMIc baNK bhD
21. aSIa’S beSt eMpLoyer braND eMpLoyer braNDING awarDS 2017 EmployerBrandingInstitute
hoNG LeoNG aSSuraNce bhD
22. DoMeStIc LIFe INSurer oF the year – MaLaySIa 2017AsianBankingandFinanceInsuranceAsiaAwards
23. beSt LIFe INSuraNce coMpaNy – MaLaySIa 2017WorldFinanceGlobalInsuranceAwards
24. beSt LIFe INSuraNce coMpaNy – MaLaySIa 2017InternationalFinanceAwards
hoNG LeoNG INveStMeNt baNK bhD
25. beSt aSSetS-bacKeD SecurItISatIoN DeaL IN SoutheaSt aSIa 2017 11th aNNuaL aLpha SoutheaSt aSIa DeaL & SoLutIoN awarDS 2017 AlphaSoutheastAsia
26. beSt Murabahah DeaL IN SoutheaSt aSIa 201711th aNNuaL aLpha SoutheaSt aSIa DeaL & SoLutIoN awarDS 2017 AlphaSoutheastAsia
27. beSt SecurItISatIoN SuKuK the aSSet trIpLe a ISLaMIc FINaNce awarDS 2017AssetTripleA
28. raM awarD oF DIStINctIoN 2017 LeaD MaNaGer awarD by NuMber oF ISSueS – 1St raNKING 15th aNNuaL raM LeaGue awarDS RAMRatings
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AWARdS &accoLaDeS
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CORPORATE
19ANNUALREPORT
2018
hoNG LeoNG INveStMeNt baNK bhD (coNtINueD)
29. raM awarD oF DIStINctIoN 2017 LeaD MaNaGer awarD by proGraMMe vaLue – 1St raNKING 15th aNNuaL raM LeaGue awarDS RAMRatings
30. raM awarD oF DIStINctIoN 2017 LeaD MaNaGer awarD (SuKuK) by NuMber oF ISSueS – 1St raNKING 15th aNNuaL raM LeaGue awarDS RAMRatings
31. coMMoDIty Murabahah DeaL oF the year ISLaMIc FINaNce NewS awarDS 2017IslamicFinanceNews
hoNG LeoNG aSSet MaNaGeMeNt bhD
32. hoNG LeoNG DIvIDeND FuND beSt FuND over 3 yearS: eQuIty MaLaySIa INcoMe (provIDeNt) the eDGe | thoMSoN reuterS LIpper FuND awarDS 2018 TheEdge|ThomsonReuters
33. hoNG LeoNG Growth FuND beSt FuND over 3 yearS: eQuIty MaLaySIa DIverSIFIeD (provIDeNt) the eDGe | thoMSoN reuterS LIpper FuND awarDS 2018 TheEdge|ThomsonReuters
34. beSt Group IN MIxeD aSSetS (provIDeNt) the eDGe | thoMSoN reuterS LIpper FuND awarDS 2018 TheEdge|ThomsonReuters
35. beSt Group IN eQuIty (provIDeNt) the eDGe | thoMSoN reuterS LIpper FuND awarDS 2018 TheEdge|ThomsonReuters
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20ANNUALREPORT2018
HONG LEONG FINANCIAL GROUP BERHAD
CHAIRmAN’SStateMeNt
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 (“Fy”) ended 30 June 2018 (“Fy18”).
FINaNcIaL reSuLtS – revIew oF the year’S perForMaNce
Amidstasubduedbusinessenvironmentandcautiousconsumersentimentformuchoftheyear,HLFGachievedacommendableperformanceby increasing its pretaxprofit by15.8%year-on-year(“yoy”) toanewhighofRM3,579million.Thishasbeencontributedby a steady andbetter businessmomentum fromourcommercialbankingandinsurancebusinesses.
HongLeongBankBerhad’s(“HLB”)pretaxprofitincreased18.1%yoytoRM3,246millionwhilstHongLeongAssuranceBerhad’s(“HLA”) pretax profits rose 8.4% yoy to RM266 million. Ourinvestment banking and asset management businesses underHongLeongCapitalBerhadreportedlowerpretaxprofitby6.4%yoytoRM79millionagainstaslowdownincapitalandequitymarketactivities.
The Group’s key balance sheet and risk metrics remainstrong.HLB’sgross impaired loan ratio stayedsoundat0.87%whilst its loan impairment coverage was at 89.5% as at 30June 2018. Inclusive of additional regulatory reserves, HLB’sloan impairmentcoveragewasat155.4%.HLB’s liquidity ratioremainsprudentwithaloan/depositratioof82.0%.HLB’scapitalposition further improvedwith its total capital ratio increasingfrom15.8%lastyearto16.3%asat30June2018.
HLFG’sprofitaftertaxandminorityinterestsincreasedby26.6%yoy to RM1,907 million. Earnings per share also increased by26.6%yoy from131.8 sen in FY17 to166.8 sen in FY18.Netassets per share rose from RM14.52 as at 30 June 2017 toRM15.55asat30June2018.
WhiletheGroupstandsreadyforthefullimplementationoftheBasel III Capital Adequacy Framework in 2019,wehavebeenabletoincreaseourdividendpersharefrom38sento40seninFY18.
rM3,579million
rM1,907million
pretax proFIt
proFIt aFter tax aND MINorIty INtereStS
+15.8%
+26.6%
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CORPORATE
21ANNUALREPORT
2018
CHAIRmAN’SStateMeNt
StrateGIc overvIew
The Group’s philosophy continues toembodyanentrepreneurialvisionfocusedon building long-term sustainable valueforallitsstakeholders.Thisvisionguidesour operating businesses to remainrelevant, to be trustworthy, progressive,competitive and sustainable in pursuitof growth and the creation of businessvalue.Webelievethatthekeytoensuringsustainability is the continued co-existenceofentrepreneurialismtogetherwithprofessionalbusinessmanagement,disciplineandgovernance.
We also acknowledge that developingthe right human resources is critical toourlong-termefforts.Webelievethatourbusinessesarebestservedbyhavinganddeveloping the right talent for the rightjobs, while at the same time balancingother key business metrics such as ourcostincomeratio.
The financial sector has increasinglybeen challenged by continued advancesin technology, in particular in theway that business and operations areconducted.Weexpectthistrendtospeedup even further. To this end, we havemade digitalization a core part of thebank’s strategy and have been keepingabreast of newdevelopments, investingin technology, as well as consciouslypositioning ourselves to benefit fromthis digital wave. We believe that we
areontherightpathandhavealsobeenrefreshing the technology platformsthrough which we interact with ourcustomers.
We remain committed to expand andgrow our Islamic banking businesswith Hong Leong Islamic Bank Berhad(“HLISB”) playing the leading role incoordinating efforts across the bankinggroup.Fortheyear,HLISB’sgrossIslamicfinancingassetsgrewby10%toRM22.9billion,comprising18%ofthewiderHongLeongBankGroup’s totalgrossfinancingassets. HLISB will continue its effortstowards the development of Islamicbankingbusinessbystrengtheningdigitalcapabilities,upholdingShariahstandardsand value based intermediation, andencouraging diversified and innovativeproductofferings.
earNINGS per Share
166.8sen +26.6%
rM14.52 30June2017
rM15.55 30June2018
Net aSSetS per Share
baNKING
As the fifth largest commercial bank in Malaysia byassets, HLB has a strong market presence inmortgages, deposits, cards and wealth management.The management team ensures that HLB maintainsassetqualitymetricsthatareamongstthebest intheindustry,where its liquidity ratios remainprudentandits capital position kept comfortably above regulatoryrequirements. Going forward, we will continue toexecute our business plans by advancing on multiplefronts towards achieving long-term sustainablegrowth. In this period, we will exercise vigilance onbothcreditinitiationparametersandthehealthofourexistingloanbooks.
“HLBalsoclinchedtheGoldAwardforHighestReturnstoShareholdersOver3YearsandSilverAwardforHighestReturnonEquityOver3YearsasawardedinTheEdge-BillionRinggitClub2017edition.”
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22ANNUALREPORT2018
HONG LEONG FINANCIAL GROUP BERHAD
INSuraNce
Under HLA, our life insurance businesshas grown over the last decade.Our agency force numbers around10,000 today having been at below3,000 ten years ago. HLA is presentlythe largest domestic insurer and ranksamongst the top 4 insurers in thecountrybynewbusinesspremiumswithcontinued strong contributions fromour agency force along with improvingBancassurancesales.
After establishing ourselves within the Ordinary Life segmentandhavingbuiltupasizeabledistributioncapability,ourfocushas been on driving and improving the profitability levers ofthecompany.Thisstrategyisbeingexecutedviaagreaterfocuson Non-Participating policies as well as concentrating on theInvestment-Linkedsegment,whichhasyieldedpositiveresults.
Going forward,our focuswill remainongrowingourbusinessembeddedvalueonasustainablebasis.Thiswouldbeachievedby driving continued improvements in our new businessembedded value, coupled with judicious management of ourexistingin-forcebusiness.However,thedigitalrevolutionseenintheinsurancesectorisnolessthanthatexperiencedinbanking.
Accordingly,HLAhascontinueditsdigitaljourneyacrossmultiplefronts.Withanestablisheddatawarehouse,weare increasingthe use of analytics capabilities to data mine our growingcustomer base to enhance effectiveness in both cross-sellingandup-sellingactivities.Apart from this,wearealsoutilisingtechnologytoenhanceourcustomerserviceandexperience.TheHLACustomer360Portalallowsourcustomerstohaveinstant,seamless and convenient access to their policy information.We will continue to enhance all our distribution channels, inparticularthoserelatingtoBancassurance,bytappingonHLB’swidenetworkofover200plusbranches.
On1July2018,weconvertedourcompositetakafullicensetoasingleFamilytakafullicense,takingthesteptoconcentratemoreonourLifebusinessesacrossbothconventionalandtakaful.Weremain focusedonpromoting andgrowingour Family Takafulinsurance businesses with Hong Leong MSIG Takaful Berhadspearheadingeffortsacrossourgroup.Webelievethepotentialfor Islamic insuranceissignificantandourplansaretobuildasizeable and sustainable business in reaching out and servingourcustomersbetter.
“Ontheinsurancefront,inrecognitionofitsperformance,HLAwasawarded
theprestigiousDomesticLifeInsureroftheYearatAsianBankingandFinance
InsuranceAsiaAwards2017.”
CHAIRmAN’SStateMeNt
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CORPORATE
23ANNUALREPORT
2018
recoGNItIoN
Iampleasedtoreportthisyearthatwehavecontinuedtoreceiveanumberofawardsacrossallouroperatingbusinessesinrecognitionofoureffortsintheindustry.
During theyear,RAMRatingsupgraded the long-termfinancial institution ratingsofHongLeongBankBerhadfromAA1toAAA inrecognitionof itsstrongassetquality.Concurrently,RAMhadassignedAA1/P1corporatecreditratings(CCRs)toHongLeongFinancialGroupBerhad.Allthelong-termratingshadastableoutlook.ItalsoreflectedHong Leong Bank’s sustained track record of having robust funding and liquiditypositions,aswellasourrespectabledomesticretailandSMEfranchises.
INveStMeNt baNKING
Our investment bankingarm, Hong Leong InvestmentBank Berhad (“HLIB”) hasmade substantial progresssince being awardedinvestment bank status in2009. Over the years, wehave achieved recognitionin the Malaysian leaguetablesaswellasashareofnotabledealsinsegmentswhere we operate,especially in our niche ofservingsmallandmediumsized corporates. Withinthe stockbroking space,wehaveasteadymediumsized brokerage whichservices both institutionalandretailclients.Ourassetmanagement businessunder Hong Leong AssetManagementBhd(“HLAM”)has also shown goodprogress and currentlymanages assets of aboutRM15billion.
We will continue to nurture ourinvestment banking relationships byfocusingonprovidinginnovativebusinesssolutions, while our stockbroking outfitwill continue to leverage on technologytobetterserveourcustomers.
“OurDebtMarketssecuredthreetoppositionawardsintherecentLeagueawardsby
programmevalueandbynumberofissuesforbothconventionalandIslamicissuance.”
CHAIRmAN’SStateMeNt
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24ANNUALREPORT2018
HONG LEONG FINANCIAL GROUP BERHAD
recoGNItIoN (coNtINueD)
OneofthehighlightsoftheyearwaswhenHLBwasselectedasoneofAsia’sbestemployersforgraduatesbyHumanResourcesAsiaRecruitmentAwards2018.TheawardwasforBestGraduateRecruitment Programme and is recognition of the bank’scommitment to develop the next generation of exceptionalbankersfortheGroup.
AnotherawardthatHLBattainedwasforBestInnovationinRetailBankingMalaysia 2017by International Banker 2017BankingAwards.Thiswasinrecognitionofourconstantdrivetoimproveproductsandservicesthroughstate-of-the-artbankingsolutions.
HLBGroup’sintensiveeffortstotransformcustomerexperienceasadigital bankwas recognizedbyAsiamoneywhen it gaveus the Best Bank in Malaysia - Cash Management CustomerSatisfaction Award 2017. In winning the award, Asiamoneynotedourunmatchedcustomercentricapproachwhichincludedseveral first-in-Malaysia innovations focused on improvingoverallcustomerexperience.TheseincludedtheuseofArtificialIntelligencetosupportcustomerservicethroughchatsoftwareandarobotconciergetohelpguidecustomersatbranches,andthe launch of “Loan2Go” being a straight-through-processingmobileautoloanapplicationplatform.
HLB also clinched the Gold Award for Highest Returns toShareholdersOver3YearsandSilverAwardforHighestReturnonEquityOver3YearsasawardedinTheEdge-BillionRinggitClub 2017 edition. These two awards are recognition of thestrongreturnsgeneratedforourshareholders.
On the insurance front, in recognitionof its performance,HLAwasawardedtheprestigiousDomesticLifeInsureroftheYearatAsianBankingandFinanceInsuranceAsiaAwards2017.ItwasawardedtoHLAforrisingabovethechallengesanditsinitiativestomakethemostofthelucrativeopportunitiesintheMalaysiandomestic insurance market. During the same period, HLAhas also been accorded as the Malaysia Best Life InsuranceCompany 2017 by World Finance Global Insurance andInternationalFinance.
In terms of HLIB, for the first time since commencement ofbusiness,ourDebtMarketssecuredthreetoppositionawardsintherecentLeagueawardsbyprogrammevalueandbynumberof issuesforbothconventionalandIslamicissuance.Theteamhasalsosuccessfullysecuredotherawardsandachievedvariousleague table achievements during the year. Apart from theachievementsandawardssecured,theteamhadalsostructuredthe first ever Islamic Basel III compliant AT-1 issuance by anIslamicbankinMalaysia.
HLIB’sEquityMarketsandtheAssetManagementteamofHLAMhave also successfully secured various awards throughout thecurrent financial year. In the Edge Thomson Reuters LipperMalaysian Fund Awards 2018, HLAM achieved 2 Group and2Individualawards,namely:
- Best Group in Equity – Malaysia Provident (for the secondconsecutiveyear);
- BestGroupinMixedAssets–MalaysiaProvident;
- BestPerformingEquityMalaysiaDiversified(3years)fortheHongLeongGrowthFund;and
- Best Performing Equity Malaysia Income (3 years) for theHongLeongDividendFund.
“TheGroup’sphilosophycontinuestoembodyanentrepreneurialvision
focusedonbuildinglong-termsustainablevalueforallitsstakeholders.
Thisvisionguidesouroperatingbusinessestoremainrelevant,tobetrustworthy,progressive,competitiveandsustainableinpursuitofgrowthandthecreationofbusinessvalue.”
CHAIRmAN’SStateMeNt
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CORPORATE
25ANNUALREPORT
2018
SuStaINabILIty
Building a sustainable Group is about how, at the core ofeverything we do, we are guided by our principles to makethe right decisions that will hold us in good stead today andin the future. We think about this in a variety of ways. First,itisimportanttomaintainfocusonoperationalexcellenceandefficiency.Wehavemadecontinuedprogresstowardsthisendwhilstinvestinginnewbusinessinitiativesandtechnologies.
Sustainability also includes having the right governance. WehaveadiverseandexperiencedBoardofDirectorsthatprovidesindependentoversight.OurBoardconstantly looksforwaystofurther strengthen corporate governance standards and adoptinternationalbestpracticestoimprove.
Our approach to sustainability alsocomes through in our commitment toensure our policies, practices, productsand programs collectively align to ourpurpose. We have done this in part bycreating simple, safe, transparent andeasy-to-use financial solutions that givepeoplegreatercontroloftheirfinances.
Finally,tobeasustainablecompany,wemustvalueourpeopleand give all employees the support they need to build theircareersandachievetheirgoals.Wehaveadiverseandinclusiveworkplace that reflects the diversity of the communities inwhich we serve. Through our recruitment programs andpartnerships,weareinvestinginthefuturebybringingthebestandbrightesttoworkatHongLeong.Aswethinkaboutallthewayswepursuesustainability,ourfocusistouseoursizeandscale in ways that contribute positively to our communities,create opportunities for our customers and employees and togrowourcompanyresponsibly.
apprecIatIoN
Last but not least, I would like to take this opportunity toexpressmyappreciationandgratitudetotheBoardofDirectors,managementandstaffofHLFGGroup for theirdedicationandcommitment. My sincere appreciation also goes out to ourregulators,shareholders,customersandbusinesspartners.
QueK LeNG chaNChairman
19September2018
CHAIRmAN’SStateMeNt
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26ANNUALREPORT2018
HONG LEONG FINANCIAL GROUP BERHAD
mANAgEmENT dISCUSSIONaND aNaLySIS
we are pleased to present the Management Discussion and analysis (“MD&a”) for the financial year ended 30 June 2018 (“Fy18”). In this report, we would like to provide a review of our Group’s business operations and financial performance during Fy18.
Insummary,forFY18,theGroupachievedagoodsetoffinancialresults with a new pretax profits record of RM3.6bn arisingfromsteadybusinessmomentumfromourcommercialbankingandinsurancebusinesses.Ourresultshavebeenachievedwithprudent operating metrics and we continue to make progressin strengthening our various business franchises towards theobjectiveofachievinglong-termsustainablegrowth.
hLFG Group perForMaNce hIGhLIGhtS
HongLeongFinancialGroupBerhad(“HLFG”) isan investmentholdingcompany.HLFGhasthreecorebusinessesinthegroup:
• CommercialbankingunderHongLeongBankBerhad(“HLB”).
• Insurance and takaful, housed under our insurance holdingcompanyHLAHoldingsSdnBhd(“HLAH”);and
• Investmentbankingandassetmanagement,housedunderHongLeongCapitalBerhad(“HLCB”).
hLFG Segmental pretax profit
rM3.58billion
pretax proFIt +15.8%
a 3,246(90.7%)
b 348(9.7%)
d -94(-2.6%)
c 79(2.2%)
a 2,748(88.9%)
b 338(10.9%)
d -80(-2.5%)
c 84(2.7%)
a Commercial Bankingb Insurance
c Investment Bankingd Other Operations/Consolidation Adj
Fy18 (RM’Million)
Fy17 (RM’Million)
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mANAgEmENT dISCUSSIONaND aNaLySIS
HLFG’spretaxprofitincreased15.8%year-on-year(“yoy”) inFY18whilstnetprofitaftertaxandminorityinterestsincreasedby26.6%yoy toRM1.91bn,mainlyduetoalowereffectivetaxrateof19.1%inFY18ascomparedto25.0%inFY17.ThehighereffectivetaxrateinFY17wasdueto one-off additional tax assessmentstotaling RM206.3m, attributable to bothHLB and HLAH. Correspondingly, Returnon equity (“ROE”) increased to 11.1%from9.4%inFY17.
Company level borrowings decreasedfrom RM1.53bn (30 June 2017) toRM1.39bnasat30June2018,assurplusdividends received were used to paydown borrowings. During the year, theCompany issued its inaugural AdditionalTier 1 capital securities and Tier 2Subordinated Notes of RM400m andRM500m.Theissuancesareinaccordancewith Bank Negara Malaysia’s (“BNM”)Capital Adequacy Framework (CapitalComponents) and our capital plans. Wewill continue to vigilantly manage ourcapital position to place us in a strongpositionwhenthefullimplementationoftheBaselIIICapitalAdequacyFrameworkfor FinancialHolding Companies kicks inon1Jan2019.
PROfIT AfTER TAx ANd mINORITy INTERESTS
rM1.91billion
RETURN ON EQUITy
11.1%dIVIdENd PER SHARE
40sen forFY18
38sen forFY17
+26.6%
+1.7%
HLFG’sbookvaluepershareincreasedfromRM14.52asat30June2017toRM15.55asat30June2018.
During the year, RAM Ratings (“RAM”) assignedAA1/P1 corporate credit ratings (CCRs) to HLFG.Concurrently, RAM upgraded the long-term financialinstitutionratingsofHLBfromAA1toAAAinrecognitionof its superior asset quality. All the long-term ratingshave a stable outlook. It also reflects HLB’s sustainedtrack record of having robust funding and liquiditypositions, as well as its respectable domestic retailandSMEfranchises.Dividendpershareincreasedto40seninFY18from38seninFY17.Whileweincreasedthereturnstoshareholders,wehavealsomanagedourcapitalpositioninanticipationof thefull implementationof theBasel IIICapitalAdequacyFrameworkforFinancialHoldingCompaniesin2019.
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28ANNUALREPORT2018
HONG LEONG FINANCIAL GROUP BERHAD
hLb Financial highlights
coMMercIaL baNKING FINaNcIaL & operatIoNaL revIew
Fy18 Fy17 Growth %
profitability & efficiency (rM’million)
TotalIncome 4,840 4,551 6.3
OperatingProfit 2,779 2,543 9.3
ProfitBeforeTax(“PBT”) 3,246 2,748 18.1
ProfitAfterTax(“PAT”) 2,638 2,145 23.0
EarningsPerShare(sen) 129 105 23.0
NetInterestMargin(%) 2.10% 2.09% 0.01#
Cost-to-IncomeRatio(%) 42.6% 44.1% (1.5)#
ReturnonAssets(%) 1.32% 1.11% 0.21#
ReturnonEquity(%) 11.3% 9.8% 1.5#
balance Sheet (rM’million)
TotalAssets 202,891 195,553 3.8
GrossLoans,AdvancesandFinancing 129,069 125,147 3.1
CustomerDeposits 157,414 155,233 1.4
asset Quality
GrossImpairedLoanRatio 0.87% 0.96% (0.09)#
LoanImpairmentCoverageRatio 89% 96% (7)#
LoanImpairmentCoverageRatio(includingRegulatoryReserve) 155% 151% 4#
Liquidity and capital ratio
Loan-to-DepositRatio 82.0% 80.6% 1.4#
CommonEquityTier-1CapitalRatio 12.6% 13.3% (0.7)#
Tier1CapitalRatio 13.3% 13.7% (0.4)#
TotalCapitalRatio 16.3% 15.8% 0.5#
#Quantumofchangeisdepicted
HLB provides full-fledged commercialbanking services including personalfinancial services, corporate bankingand treasury solutions. Islamic financialservices are provided via HLB’s100%-owned subsidiary Hong LeongIslamicBankBerhad(“HLISB”).
HLB’s regional financial services areprovidedvia:• AbranchinSingapore;• AbranchinHongKong;• 100%-owned commercial bank Hong
LeongBankVietnamLimited;• 100%-owned commercial bank Hong
LeongBank(Cambodia)PLC;• 49%-owned consumer finance joint
venture Sichuan Jincheng ConsumerFinanceLimitedCompany;
• 18% equity interest in the Bank ofChengduCo.,Ltd;and
• A representative office in NanjingChina.
MaNaGeMeNt DIScuSSIoNaND aNaLySIS
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29ANNUALREPORT
2018
coMMercIaL baNKING FINaNcIaL & operatIoNaL revIew (coNtINueD)
HLB’s pretax profit increased 18.1% yoyto RM3.25bn in FY18. This achievementwas driven by prudent loan pricing,effective funding cost management andstronggrowthinnon-interestincome,aswell as a higher associate contributionfrom the Bank of Chengdu, where itscontributionincreasedRM173.2myoy.
HLB’s total income growth was broadbased,emanatingfrom:
• Higher non-interest income, whichincreasedRM154.2myoy.
• HigherIslamicBankingincome,whichincreasedRM96.0myoy.
• Higher net interest income, whichrose RM38.7m yoy, driven by a 1bpsincreaseinnetinterestmargin(“NIM”),aswellasa3.1%yoyincreaseingrossloans.
Net interest and financing incomeexpanded 4.2% yoy to RM3.50bn inFY18,aidedbybothloangrowthandanimprovement in NIM. The improvement
in NIM reflects continued prudent loanpricing and funding cost management.Non-interest and non-financing incomeimproved by 12.5% yoy to RM1.34bnwith a higher non-interest income ratioof27.8%.
Cost/Incomeratiodecreasedfrom44.1%in FY17 to 42.6% in FY18, at the lowerendoftheindustryrange.
Core business performance indicatorsremained positive, with gross loansgrowing by 3.1% yoy to RM129bn asat 30 June 2018 alongside continuedstringent credit initiation controls.Residential mortgages increased 7.9%yoy to RM61.4bn, while loans to SMEswerehigheratRM20.5bn.
Customerdepositsincreasedby1.4%yoytoRM157bnasat30June2018,achievedamidst an increasingly competitiveenvironmentfordeposits.ThistranslatestoaLoan/Deposit(“L/D”)ratioof82.0%andaloantofundratioof83.5%,whichplacesHLBinacomfortableliquidityposition.
HLB’S PRETAx PROfIT
rM3.25billion
gROSS LOANS
rM129billion
CUSTOmER dEPOSITS
rM157billion
COST/INCOmE RATIO
42.6%
+18.1%
+3.1%
+1.4%
NET INTEREST ANd fINANCINg INCOmE
rM3.50billion
NON-INTEREST ANd NON-fINANCINg INCOmE
rM1.34billion
+4.2%
+12.5%
MaNaGeMeNt DIScuSSIoNaND aNaLySIS
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30ANNUALREPORT2018
HONG LEONG FINANCIAL GROUP BERHAD
personal Financial Services (“pFS”)
PFS remained the largest contributor to HLB, makingup 53% and 34% of its revenue and pre-tax profit,respectively. Retail loans and deposits grew 3% and2%respectively, inlinewiththesofterdomesticretailmarketgrowth.Assetqualitymeanwhileremainedsolidasreflectedby its lowGILratioof0.62%.The lowGILratio was achieved on the back of disciplined lendingandprudentriskmanagement.
Themortgagebusinesssustainedgrowthin originations with loan acceptancesgrowing11%y-o-ydespiteasoftpropertymarket. To further improve our position,we strengthened our capabilities toserve developers and property marketintermediaries during the year. Thisallowedustodrivewidermarketcoverageand deliver higher sales and servicestandards.Wecontinued to innovate thecustomer experience and purchasingjourneyby introducinga fast and secureonline approval-in-principle service inFebruary2018.Wealsointroducedtieredinterest rates to better align ourselveswiththeneedsofcustomerandassistedthem with their home ownershipcashflow.
Retail deposits grew 2% y-o-y drivenlargely by contributions from both SMEand individual segments. During theyear, the emphasis was placed on keyproductsnamely theBizOneAccount fortheSMEsegmentandPay&Saveforthe
individual segment. There was also anemphasis on cross selling to customerswho do not have a current or savingsaccountwithHLB.
business & corporate banking (“bcb”)
ItwasasolidyearforBCBwith revenue and pre-taxprofitatRM1.1billionandRM831millionrespectively.Thisrepresentsa24%and26% contribution to theHLB’s total income andpre-taxprofit.BCB’s loans growth performance of4% y-o-y was mainly anchored by thecommercial/ mid-sized corporate andSMEclientsegments,whichgrewat10%y-o-yand22%y-o-yrespectively.
Healthy growth has also been exhibitedin Current Accounts balances where weregistered a growth of 4% y-o-y, whichoutperformed the industry demanddepositgrowth.
TOTAL dIVIdENd
48.0sen per sharedIVIdENd PAyOUT RATIO
37%
Asset quality andprovisioning remainedsound,withagrossimpairedloan(“GIL”)ratio of 0.87% and loan impairmentcoverage at 89.5% as at 30 June 2018.Inclusiveofadditionalregulatoryreservessetaside,HLB’scoverage ratio increasedto155%asat30June2018.
HLB’s capital position remained robust,especiallyaftertheissuanceofAdditionalTier 1 capital securities and Tier 2Subordinated Notes during the year,with Common Equity Tier 1, Tier 1 andTotal Capital Ratios at 12.6%, 13.3%and 16.3% respectively as at 30 June2018, positioning HLB well for the fullimplementation of the Basel lll capitaladequacyframeworkin2019.
HLB raised its total dividend from 45.0sen per share last year to 48.0 sen pershare in FY18, translating tobetter cashflows for HLFG. HLB’s dividend payoutratioisat37%.
gROSS ImPAIREd LOAN RATIO
0.87%
coMMercIaL baNKING FINaNcIaL & operatIoNaL revIew (coNtINueD)
mANAgEmENT dISCUSSIONaND aNaLySIS
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CORPORATE
31ANNUALREPORT
2018
The Global Markets business turned ina strong performance for the year withrevenue and pre-tax profit at RM577million and RM468 million respectively.This represents a 12% and 14%contribution to HLB’s total income andpre-taxprofit.Thestrongmomentumwasachievedonthebackofimprovedbranchand SME FX revenues and increaseddeal activity from our FI/GLC segment.Heightenedmarketvolatility inglobalFXandinterestratesalsohelpeddrivebettertradingperformance.
Our strong franchise positioning inMalaysia continues to be affirmed byleading publications. For example, TheAssetawardedustheTop3spotsforLocalCurrency Bond Sales. Asiamoney alsoranked us 2nd for their Corporate ClientChoiceAwardsinMalaysia.
HLISB achieved some significantmilestonesinthedigitaltransformationofitsIslamicbankingservicesandproducts.During the year HLISB expanded theautomation of Commodity MurabahahTradingtoawiderrangeofproductssuchas Personal Financing-I, ABS Financing-IandCashline.HLISBalsointroduced24/7commoditytradingforcertainCommodityBased products. The initiatives not onlyimprove efficiency but also enhancedthe flexibility and digital capability ofourproducts.HLISBalsoexpandeddigitalofferings to include broader marketsegments. These included areas suchas Islamic wealth management andbusinessbanking.
HLISB continues to focus on the growthof financing through small and mediumenterprises (‘’SMEs”) financing. Inachieving this objective, HLISB has beenworkingcloselywithgovernmentagenciessuch as TERAJU and SME Corporation. Aspartofitsstrategicplan,HLISBcontinuedits partnership with SMECorp under theShariah-compliantSMEFinancingScheme2(“SSFS2”)toprovidefinancingassistanceto eligible SMEs involved in Shariah-compliantbusinessactivities.
Islamic banking
HLISB achieved a strong growth in earnings in the2018financial yearwithPBTgrowing28.9%over theprevious year. ROE and ROA improved to 13.2% and0.9% respectively from11.6%and0.8% thepreviousyear. The growth in earnings was in tandem withthe enlarged financing business supported byrobust cost management and increase in operatingefficiency.Ouroperatingexpensesremainedstablewiththe CIR at 32.1%, which is markedly lower than lastyear’s37.2%.
Global Markets (“GM”)
The Global Marketsbusiness is a key productpartner for HLB’s clients,encompassing ForeignExchange (FX), FixedIncome, Derivatives andStructured Products. Ourpresenceinfivecountries,namely Malaysia,Singapore, Hong Kong,Vietnam and Cambodia,allows us to holisticallymanage client solutionsin various currencies. GMis also responsible formanaging HLB’s excessliquidity and capitalthrough investments inFixed Income and MoneyMarketinstruments.
coMMercIaL baNKING FINaNcIaL & operatIoNaL revIew (coNtINueD)
mANAgEmENT dISCUSSIONaND aNaLySIS
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32ANNUALREPORT2018
HONG LEONG FINANCIAL GROUP BERHAD
HLFG’s100%-ownedsubsidiaryHLAHoldingsSdnBhd(“HLAH”)istheinsuranceholdingcompanyoftheGroup.HLAHholds:
• 70% equity interest in life insurance company Hong LeongAssuranceBerhad(“HLA”);
• 30% equity interest in general insurance company MSIGInsurance(Malaysia)Bhd(“MSIG”);
• 65%equityinterestincompositetakafuloperatorHongLeongMSIGTakafulBerhad(“HLMT”)(Note1);
• 100% equity interest in Hong Kong general insurancecompanyHongLeongInsurance(Asia)Limited(“HLIA”);and
• 100%equityinterestinSingaporegeneralinsurancecompanyHLAssurancePte.Ltd.(“HLAS”).
Note 1: With effect from 1 July 2018, HLMT converted itscomposite license to a family only takaful license and ceasedtakingonnewgeneraltakafulbusiness.
HLAH’s pretax profit increased by 3.0% yoy from RM337.8min FY17 to RM348.0m in FY18. This was mainly contributedfrom an increase in HLA’s pretax profit to RM265.5m in FY18fromRM245.0minFY17andhighercontributionfromHLMTofRM13.0m.OurfullyearshareofMSIG’sprofitaftertaxdecreasedby14.1%yoyfromRM73.5minFY17toRM63.1minFY18mainlyduetohighernetclaimsfortheyear.However,ifweexcludethenon-recurringitemofRM58.5minHLA’sresults,HLAH’swouldhavegrownitspretaxprofitby20.3%yoy.
HLA is the largest business within our insurance division,comprising 76% of total HLAH insurance pretax profits. HLA’shigherpretaxprofitwasmainlyduetohighernon-parsurpluses,
which increased RM52.4m yoy, assisted by higher long-termMalaysianGovernmentSecuritiesinterestrates.Theresultsalsoreflectthecontinuedexecutionofourstrategytoenhanceouragency and bancassurance distribution channels, as well astargetingspecificgrowthinourNewbusinessembeddedvaluethroughamoreprofitableproductmixviahighersalesofNon-ParticipatingandInvestment-Linkedpolicies.
HLA’sgrosspremiumsremainedattheRM3bnmarkfortheyear,achievedamidsta tougherbusinessenvironmentaswellasagreaterfocusonNon-Participatingpolicies.HLA’sachievednewbusinessregularpremiums(“NBRP”)ofRM537.5minFY18.
After establishing ourselves within the Ordinary Life segmentandhavingbuiltupasizeabledistributioncapability,ourfocushas been on driving and improving the profitability levers ofthecompany.Thisstrategyisbeingexecutedviaagreaterfocuson Non-Participating policies as well as concentrating on theInvestment-Linkedsegment,whichhasyieldedpositiveresults.WithintheInvestment-Linkedsegment,wemaintainedourNo.4positionin2017,bythesamemetric.
HLAispresentlythelargestdomesticinsureraswellastheNo.4insureramongstalllocalandforeignlifeinsurersinMalaysia,asmeasuredbynewbusinessannualisedregularpremiums.
Fy18 (RM’Million) Fy17 (RM’Million)
HLA HLAMSIG MSIGHLMT,HLIA,HLAS&Others
HLMT,HLIA,HLAS&Others
245266
6374
19 19
rM348million
hLah’S pretax proFIt+3.0%
INSuraNce/taKaFuL FINaNcIaL & operatIoNaL revIew
mANAgEmENT dISCUSSIONaND aNaLySIS
hLah Segmental pretax profit
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33ANNUALREPORT
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INSuraNce/taKaFuL FINaNcIaL & operatIoNaL revIew (coNtINueD)
HLA’S gROSS PREmIUmS rM3billion
Intermsofdistribution,HLAcontinuestoexecuteitsBancassurancePlan,whichaimstoleverageoffthedistributionnetworkofitssistercompanyHLB’scirca273branches.Overthe last5years,HLAhasincreaseditsNon-Agency(Bancassurance)marketshareofNBRPfrom4.9%in2010to10.5%in2017andnowholdstheNo.5positionwithinthisdistributionsegment.
HLA’smanagementexpenseratiowas5.9%inFY18,thelowestamongstthemajordomesticlifeinsurers.WehavelaunchedourHLACustomer360PortalinJuly2016.Throughthisportal,allHLAcustomerswillhaveinstantandseamlessaccesstotheirpolicyinformation,attheirconvenience.
In recognition of its performance, HLAhas been awarded the prestigiousDomestic Life Insurer of the Year at theAsian Banking and Finance InsuranceAsia Awards 2017. It was awarded toHLA for risingabove thechallengesandits initiatives to make the most of thelucrative opportunities in the Malaysiandomestic insurance market. During thesameperiod,HLAhasalsobeenaccordedtheMalaysiaBestLifeInsuranceCompany2017byWorldFinanceGlobal InsuranceandInternationalFinance.
mANAgEmENT dISCUSSIONaND aNaLySIS
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34ANNUALREPORT2018
HONG LEONG FINANCIAL GROUP BERHAD
HLCBprovidesinvestmentbankingandstockbrokingservicesthrough100%-ownedsubsidiaryHongLeongInvestmentBankBerhad(“HLIB”).HLIBprovidesthefullrangeofinvestmentbankingservicesencompassingdebtcapitalmarkets,equitycapitalmarketsandTreasury&Markets.Stockbrokingservicesareprovidedfromanetworkof3branchesand6HongLeongHubswithinMalaysia.Assetmanagementservicesareprovidedthrough100%-ownedsubsidiaryHongLeongAssetManagementBhd(“HLAM”).
HLCBhashadachallengingyearattributabletoweakcapitalmarketsandmutedcorporateactivities.Pretaxprofitdecreased6.5%yoyfromRM84.0minFY17toRM78.6minFY18.
Investment banking (“Ib”)
Treasury and Markets (“T&M”) was the largest contributor tothe IB Division in FY18, contributing 46% of total IB Divisionrevenue, ahead of Debt Markets, which contributed 45% ofdivisionrevenue.T&Mreportedlowerrevenueby15.9%inFY18mainlyduetotheeffectoftheOvernightPolicyRateadjustmentof25basispointsinJanuary2018andcautioussentimentfrominvestorsleadinguptothe14thGeneralElection.
Revenue generated from Debt Markets in FY18 achieved agrowth of 6.9% from RM27.0m in FY17 to RM28.9m in FY18.Higher revenue from Debt Markets was mainly attributed toplacement income earned from underwriting deals at primarylevelsinwhichHLIBactedassolePrincipalAdvisor,LeadArrangerandLeadManager.
TheEquityMarketsdivisionhadaverychallengingyearduetothesoftmarketconditionsinFY18withonly1IPOontheMainMarketand13otherIPOsonLEAP/ACEMarket.Nonetheless,theteamiscautiouslyoptimisticbecausethedealspipelineremainsencouragingand the teamcontinues toexploredifferentwaysand opportunities to diversify HLIB’s income source and createvalueforclientsinthecomingfinancialyear.
Stockbroking (“Sb”)
The stockbroking business of HLIB delivered a positive resultregistering a 9.0% revenue growth from RM79.6m in FY17to RM86.8m in FY18 and a 11.5% pre-tax profit growth fromRM29.2minFY17toRM32.6minFY18.Thegrowthwasmainlydue to a higher market share achieved and higher revenuecontributionsfromtheInstitutionalande-Brokingdesks.
Thestockbrokingbusinessrecordeda20.5%increaseintradingvolume against Bursa Malaysia’s 16.0% increase in tradingvolumeforFY17.Marginincomedecreasedby27.4%comparedto the previous financial year from lower margin drawdownbalancesthroughoutthecurrentfinancialyear.
mANAgEmENT dISCUSSIONaND aNaLySIS
revenue by business Segment(RM’Million)
InvestmentBanking
Stockbroking FundManagementandUnitTrustManagement
67.5
84.1 86.879.6
34.927.8
2018
2017
pbt by business Segment(RM’Million)
InvestmentBanking
Stockbroking FundManagementandUnitTrustManagement
29.3
38.8
32.629.2
12.4
8.1
2018
2017
INveStMeNt baNKING FINaNcIaL & operatIoNaL revIew
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35ANNUALREPORT
2018
INveStMeNt baNKING FINaNcIaL & operatIoNaL revIew (coNtINueD)
asset Management
HLAM’s higher pretax profit of RM12.4m, up 53.1% yoy, wasachievedonthebackofimprovedfundinvestmentperformanceandhigherassetsundermanagementofRM15bn.Inrecognitionof its fund performance, HLAM also won various awards atTheEdgeThomsonReutersLipperMalaysiaFundAwards2018asfollows:
rISKS
TheGroupisexposedtocredit,market,operational,liquidityandreputational risks.We have processes and controls in place toensuretheserisksareadequatelymanaged.TheserisksandourcontrolsarespeltoutintheStatementonCorporateGovernance,RiskManagementandInternalControlofthisannualreport.
proSpectS
Whilst we believe the economy will go thorough challengesand a slower growth in the immediate term, the economicfundamentals of the country are sound and the longer termprospectspromisinggiven theprudentandsupportivepoliciesof the government. This will provide a more conducive andsustainable operating environment for the financial servicesindustry.
Wewillcontinuetopursueourplanstogrowourcorebusinessesof Commercial Banking, Islamic Financial Services, Insurance,InvestmentBanking,StockbrokingandAssetManagementwhilsttakingappropriatestepstojudiciouslycontrolourexpensesandreinvestintherightareas.
Our key strategic objective remains the pursuit of long-termsustainable growth. We will also continue to review potentialacquisitionopportunitiesthatwillcomplementandaddvaluetoourfinancialservicesgroup.
Further INForMatIoN
Forfurtherinformationonoursubsidiaries,pleasereferto:
• HLB’s FY18 MD&A in their FY18 annual report at www.hlb.com.myorwww.bursamalaysia.com;and
• HLAH and HLA’s financial statements at www.hla.com.my;and
• HLCB’sFY18MD&AintheirFY18annualreportatwww.hlcap.com.myorwww.bursamalaysia.com.
apprecIatIoN
Last but not least, we would like to take this opportunity toexpressourgratitudetotheBoardofDirectorsfortheirsupportandguidance,themanagement,colleaguesandstaffthroughouttheHLFGGroupfortheirdedicationandcommitment.
Our sincere appreciation also goes out to the regulators,shareholders,customersandbusinesspartnersaswellastothecommunityweservefortheircontinuedfaithandconfidenceinHongLeongFinancialGroup.
beSt perForMING eQuIty MaLaySIa DIverSIFIeD3 years – Hong Leong growth fund
beSt perForMING eQuIty MaLaySIa INcoMe3 years – Hong Leong dividend fund
beSt Group IN eQuItymalaysia Provident (for the second consecutive year)
beSt Group IN MIxeD aSSetSmalaysia Provident
mANAgEmENT dISCUSSIONaND aNaLySIS
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SUSTAINABILITyStateMeNt
this is hong Leong Financial Group berhad’s (“hLFG”) sustainability report covering the financial year ended 30 June 2018 (“Fy18”).
this year’s report includes the economic, environmental, social risks and opportunities (“sustainability matters”) of our subsidiaries including our banking businesses under hong Leong bank berhad (“hLb”) and the investment banking businesses under hong Leong capital berhad (“hLcb”) in Malaysia. It also includes selected initiatives undertaken at the company level of hLFG.
a. hoNG LeoNG Group vaLueS
TheHongLeongGroupwasbuiltonastrongheritageofvaluecreationforourstakeholdersandcommunitieswithinwhichweoperate.Overthedecades,wehavetakenaprogressiveapproachinintegratingsustainabilityintoourbusinessestobecomestrongerandmoreresilient.Wearecommittedtogrowingourbusinessesresponsibly,balancingenvironmentalwitheconomicconsiderations,aswellascreatingapositiveimpactforourstakeholdersandcontributingtoourcommunities.Thisisreflectedinourcorevaluesthatserveasacompassinallthatwedo:
Forfurtherinformationonsustainabilitymattersonoursubsidiarieswhichincludesselectedindicators,pleaserefertothesustainabilityreportsof:
•HLBatwww.hlb.com.myorwww.bursamalaysia.com•HLCBatwww.hlcap.com.my orwww.bursamalaysia.com
Honour Toconductbusinesswithhonour.
HumanResources Toenhancethequalityofhumanresources–astheessenceofmanagementexcellence.
Entrepreneurship Topursuemanagementvisionandfosterentrepreneurship.
Innovation Tonurtureandbecommittedtoinnovation.
Quality Toconsistentlyprovidegoodsandservicesofthehighestqualityatcompetitiveprices.
ProgressTocontinuouslyimproveexistingoperationsandtopositionforexpansionandnewopportunities.
Unity Toensureonenessinpurpose,harmonyandfriendshipinthepursuitofprosperityforall.
SocialResponsibility Tocreatewealthforthebettermentofsociety.
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b. SuStaINabILIty GoverNaNce
HLFG’ssustainabilitystrategyisdeterminedbyourBoardwho provides oversight of our corporate sustainabilityperformance.HLFG’sBoard is assistedby itsBoardAudit& Risk Management Committee. Senior Management,namelyourPresident/CEO,overseesthe implementationofoursustainabilityapproachandensuresthatkeytargetsarebeingmetwiththesupportoftheGroupCFO
c. MaterIaL SuStaINabILIty MatterS
1. Identifying our Material Sustainability Matters
In order to present a report that is meaningful toour stakeholders, we conducted a materialityassessment to determine those issues that areimportanttoHLFGaswellasourstakeholders.Theassessmentcomprisedfoursteps:
Identification Referencing the list of material sustainability matters identified by HLB andHLCB.
prioritisation Thelistofmaterialsustainabilitymatters were prioritised during a materiality assessment with the Sustainability Reporting Team and through review by seniormanagement.
validation Thematerial sustainabilitymatterswere then validated with the Group CFO and approvedbytheBoardofDirectors.
review This final step encompasses feedback from all our stakeholders. From the feedback, we will be able to further refineoursustainabilityapproachsoasto presentevenmoremeaningfulreportsin thefuture.
2. Material Sustainability Matters
TheninematerialissuesidentifiedarealsoalignedwiththeHongLeongGroup’smission:
• HelpingClientsSucceed
• ProvidingOurPeoplewiththeBestOpportunities
• CreatingStakeholderValue
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c. MaterIaL SuStaINabILIty MatterS (coNtINueD)
2. Material Sustainability Matters (continued)
Theninematerialissuesidentifiedareasfollows.
Material Matters Definition of Material Matters
helping clients Succeed
1. DigitalInnovation• Innovationofourdigitalproductsandservicesbyoursubsidiariesiscriticalto
increaseaccessibilityandconvenience.
2. CustomerExperience• Efforts taken to enhance HLFG subsidiaries’ products and services for
customers, including improvement efforts taken to meet our customers’preferencesandneeds.
3. CyberSecurityandDataPrivacy
• InitiativestakentoprotectHLFGfromunauthorisedaccessorattacksthatareaimedforexploitationoftheinformation.
• Efforts takenbyHLFG to implementprocessesandmeasures thatprevent,identifyandaddressvulnerabilitiesandthreatstopersonalandconfidentialdataofourcustomers.
providing our people with the best opportunities
4. EmployeeExperience• Employee wellbeing, benefits, rewards and recognition based on their
contributiontoHLFG,whichcaninfluenceHLFG’sabilitytoattractandretaintalent.
creating Stakeholder value
5. Goodgovernance
• HLFG’svalues,principles,standardsandnormsofbehaviour,suchasourcodeof conduct and codes of ethics that have been developed, approved andimplemented.
• LevelofcompliancetolocalregulationsandothercoreoperationalregulationsthathelpindicatetheabilityofmanagementandHLFG’ssubsidiariestoensurethatoperationsconformtocertainperformanceparameters.
6. CommunityBanking• Localcommunityengagementthroughdevelopmentprogrammesbasedon
theneedsofthecommunities.
• Economicwellbeingofemployeesaspartofthecommunity.
7. ProductResponsibility• HLFG’seffortstoensurefairdesignandsaleofHLFG’ssubsidiaries’products
andservicesthatdirectlyaffectstakeholdersandcustomers.
8. ManagingtheEnvironmentalFootprint
• HLFG’s efforts to reduce usage of paper, including initiatives that involveemployeesandHLFG’ssubsidiaries’productsandservices.
• Energy management to minimise environmental impact from HLFG’soperationssuchasenergyefficiency.
• EffortstakentoreduceGHGemissionsfromHLFG’sactivities.
• Waste management that is in compliance with international and nationalstandards. It includes actions taken to minimise waste throughout itsoperations.
9. EnvironmentalandSocialAssessmentofProductsandServices
• ConsiderationofenvironmentalandsocialaspectsduringtheassessmentofHLFG’ssubsidiaries’productsandservices.
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3. Importance and Management of Sustainability Matters
i. Digital Innovation
Digital innovation isthe application of newtechnologies, both inhardware and software, toexisting business practices.It allows us to better serveourcustomers,aswellas toreduceourandourcustomers’operatingcosts.
We also look at digitisationasanorganisedwayofusingtechnologytoolsonoptimisedprocesseswithanobjectiveofreducingmanualinterventionthroughautomatedactivitiesthat should yield higherproductivity and customersatisfaction. Digitisation istheessentialkeytotransformour traditional productsdeployment approach intoa progressive, dynamicand sustainable customerorientedbusiness.
heLpING cLIeNtS SucceeD
MaJor INItIatIveS FroM hLb:
£ Introducedseveralfirst-in-Malaysiaandintheregioninnovations including the introduction of the useof artificial intelligence, robotics, real time speechanalytics,visualanalytics,realtimecustomerfeedbackand in-branch tablet solutions to boost the deliveryof our customer experience and their omni-channeljourneyswithus.
£ The first Digital branch for the HLB was opened on3November2017inDamansaraCity,KualaLumpurtobringcustomersanewexperiencethroughinnovativeservicedelivery.
£ AnexcitingdigitisationinnovationistheHLBLoan2Gooff-sitemobileauto loanapplicationplatformwheremanaging loan accounts was made easy and 24/7accessibletoourcustomers.
£ Launched the HL Connect First on 22nd November2017. This innovationoffers single sign-onaccess toa comprehensive suite of advanced cash, trade andforeignexchangesolutionsforcorporate,commercialand SME customers of HLB and Hong Leong IslamicBankBerhad(“HLISB”).
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c. MaterIaL SuStaINabILIty MatterS (coNtINueD)
3. Importance and Management of Sustainability Matters (continued)
ii. customer experience
Inthedigitalerawheretech-savvymillennialsmakeupthemajorityofourcustomerbase,wearewitnessingashiftincustomerbehaviourfromconventionalbankingtodemandsforonlinebanking.Digitisationtrendsinthebankingandwiderindustriesdrivebusinessdevelopment,whichin turn drive continued higher customer expectations and satisfaction.Beingdigital at the core isnotonlyaboutbeingmobileorhaving thelatesttechnologybutitisalsoaboutfindingeffectiveideastointeractandengagewithcustomers.
Werecognisethatinordertogrowsustainably,weneedtoensureourcustomersaresatisfied,notonlywithourproductsandservicesbutalso theway inwhich thesearedelivered.Enhancingourcustomerexperiencewithuser-friendly,relevantproductsandservicesisimportanttomaintainingareputablefinancialservicesbrandandstandinginthemarket.
MaJor INItIatIveS/poLIcIeS FroM hLb:
£ HLBlaunchedtheMobileWalletProjectGreenLantern(WechatPay). HLB obtained Bank Negara Malaysia’sapproval to enter into an agreement with TenpayPayment Technology Co Limited, a subsidiary ofTencent(“Tencent”),toprovideWeChatPaypaymentsolution.
£ Customers’ feedback is crucial to help us improveourdigitisationefforts.Wecollectcustomeropinionsthrough HLB touchpoint channel users such as thecontact center, branches, self-service terminals anddigitalbankingwiththesubscriptiontoanEnterpriseFeedback Management (“EFM”) platform. Thisplatform collects and reports customer feedback inreal-time.
£ Effective 14 August 2017, HLB has discontinuedchequebookreplenishmentforPay&SaveAccountandremovedChequebookfacilityasoneofthefeaturesofPay&SaveAccount.
MaJor INItIatIveS/poLIcIeS FroM hLcb:
£ HLCB’sAssetDeskof StockbrokingDivisionhasbeenactively installing front line trading programs whichfacilitateclients’tradeexecutionandtheconsolidationofalltradesexecutedduringthedaytoeasethedayend reporting requirements and to enhance clients’experiencewithus.
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3. Importance and Management of Sustainability Matters (continued)
iii. cyber Security and Data privacy
Cyber security and customerdata privacy continue to bea top priority for our Group.Wecannotoverstateenoughthe importanceof protectingthe customer data we holdnor understate the risksinvolvedaffectingreputation,loss of trust by customers/stakeholders, claims andregulatory actions amongstothers.Wehaveimplementedand continue to upgradeand strengthen a multitudeof measures to safeguardcustomer data and preventsecurity breaches in ourorganisation.
We deploy specialist knowledge and keytechnologies to detect and prevent a fraudincident or cyberattack, and if we catchan attack in progress then we can containit. However, it’s not just down to our teamof developers, IT teams and our fraudmanagement unit. We also need to ensurethat our customers are aware of the risksandconsequencesoffraud.Securityisajointresponsibility between the bank and thecustomer where customer education alsoplaysanimportantpreventiverole.
MaJor INItIatIveS/poLIcIeS FroM hLb:
£ Establishment of Cyber Threat intelligence purposedat creating aworld view on latest threats, mappingout a threat landscape and how it affects HLB as awhole. HLB targets to implement the Global CyberThreatintelligencefeedsbyFY19.Amongtheongoingactionplans tohelpHLBachieve this target are theenhancementofitsMalwareandEndpointProtection,implementing the APT mitigation platforms andexercising around the clock Security OperationsCentermonitoring.
£ HLB has established multiple channels forcommunications, from having brown bag sessions,townhalls,toonlineande-basedawarenessonCyberSecurityandPrivateDataProtection.
MaJor INItIatIveS/poLIcIeS FroM hLcb:
£ Installations of antivirus software on workstationsand devices to prevent uninvited threats fromemails, external storage or through the network,implementation of file encryption protection on allfilesretrievedfromworkstations,andcontrolsontheaccessibilityofdataretrievedfromworkstations.
£ Cyber security awareness program is conductedinternallywithin thegroup toaddress the rapidandever-changingdatasecurity threatenvironment.Theprogramsprovidetheeducation,monitoringandon-goingmaintenanceofsecurityawareness.
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c. MaterIaL SuStaINabILIty MatterS (coNtINueD)
3. Importance and Management of Sustainability Matters
iv. employee experience
Creatingapositiveemployeeexperiencehelpsustoattractandretainthebesttalent,whichisessentialinanyservicesbusiness
hLFG (company level)
Gender Number %
Male 14 37
Female 24 63
total 38 100
provIDING our peopLe wIth the beSt opportuNItIeS
hLb
The success of HLB’s Human Resource strategy dependsin part on our ability to retain, motivate, develop,and continue to attract employees with the skills andexperiencetohelpHLBmasterchallengesandmakethemostofopportunities.Investinginouremployeesremainsof paramount importance. TheHumanResourcesReport,“Fit for FutureWorkforce”provides transparencyon theiremployeemetricsandhowwearetranslatingourstrategicprioritiesintoaction.
One of HLB most valuable assets is the workforce. It’sunrealistic to think that HLB can survive with talentedworkers with skills that aren’t periodically upgraded.Investing in their knowledge base and professionaldevelopment is critical for their success. This type ofinvestmentalsounderliesthecompany’sstrategicplantocreateaworld-classworkforce.
Providing relevant training and implementing workforcedevelopment are essential components of HLB’s humanresourcesfunction.Havingthenecessarytoolsforsuccesswill inevitably benefit the organization overall. EnsuringemployeesareequippedtoperformathighlevelsandtosustainhighperformanceisHLB’straininganddevelopmentgoal.Inaddition,providingskillsbuildingandprofessionaldevelopmentopportunitiestoemployeesgreatlyenhancetheirjobsatisfactionandengagement.
hLcb
HLCB has introduced a HiPo (“High Potential”) programas one of the initiatives under its talent managementstrategy. The program aims to build a strong successionpipelineofbrightandskilledfutureleadersandmaintainahigh retention rate.Additionally,HLCB Talent IncubatorProgram(Management Trainee)programwas introducedwiththeaimtopropelpassionate,engagedandaspiratedyoungtalents.
Besides, as part of the talent management program todrive the company’s workforce to achieve a high levelof professionalism, HLCB has developed a CompetencyStructureforeachcategoryofemployee.TheCompetencyStructure defines the skills and knowledge requires forsuccessful job performance at all levels. We derive thestructurebasedonexpectedtraitsanddemandinupcomingmarket workforce specifically for Head of Department,PeopleManagerandContributor.
HLFGstrivestocreateanequalopportunity workplace forall employees. We believewe have succeeded to someextent at this, as over 60%ofouremployeesarefemale.In order to retain talent,we provide suitable careerprogressionandweencourageemployees to maintain areasonable work-life balance.Employeesareencouraged todeveloptheirskillsetswiththeaid of training opportunitieswhichtheCompanyprovides.
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3. Importance and Management of Sustainability Matters
v. Good Governance
Goodgovernance isessentialtoensurethattheoperationsoftheGrouparemanagedinamannerwhereallstakeholdersaretreatedfairly.
vi. community banking
As a financial services provider, the mostsignificant way in which we can make apositive social impact is by the provisionof quality service that helps our localcommunities better manage and enhancetheirfinancialwell-being.Tothisend,weareconscious of having products that meet theneedsofcustomersfromall incomebracketsand to provide access to our banking servesto less served segments of the community,
as well as in supporting under-served entrepreneurs,particularly start-ups.Weseek toengageandhelp localcommunities develop via programs that have beendesignedtomeettheirspecificneeds.
Beyondaccesstoourproductsandservices,wefeelitisourdutyasa responsible corporateorganisation toplaya role in elevating the standard of living of the moremarginalised pockets of community. This is achievedthrough various philanthropic and social outreachprogrammes supported by our Group philanthropic arm,Hong Leong Foundation. Through these initiatives, wealsoprovideouremployeesanavenuetocontributeinameaningfulwaytothecommunity.
creatING StaKehoLDer vaLue
MaJor INItIatIveS/poLIcIeS FroM hLb:
£ Corporate-wide approach to managing compliancethrough HLB’s Operational Risk Management andComplianceCommittee,whichworkstoensureHLB’scompliancetoitsWhistleblowingPolicy,PDPA,CustomerDataSecrecyPolicy,Shariahrulesandrequirements,andotherregulationsrelatedtomarketingcommunicationsforHLB’sproductsandservices.
£ CodeofConductandEthicsthatHLBexpectsallstaffto adhere to. The Code is available on HLB’s OnlineKnowledgePortal.
MaJor INItIatIveS/poLIcIeS FroM hLcb:
£ Training provided to employees on Anti MoneyLaunderingandCounterFinancingofTerrorism.
£ HLCB’sCodeofConductandEthicsprovidesguidanceonthepolicyonEntertainment&Giftstoaddressrisksrelatedtocorruption.
MaJor INItIatIveS/poLIcIeS FroM hLb:
£ HLBistakinganactiveroletowardssupportingthegrowthofMalaysia’sSMEsector,byprovidingfinancial support to SMEs as well as enablingavenuesandopportunitiesthataddressestheirnon-financialneeds.InFY17,ourbaselinetargetfor SME loan base was set at RM20 Billion.HLB plans to double the loan base of SMEbyFY21.We target to achieve this by supportingthe growth and capability development ofSMEs through the provision of relevant tools,knowledge,andbankingproductsandservices.
£ Deployment of 150 community bankingmanagersatbranchesnationwidetoservetheSMEsegment,and increaseHLB’s coveragebyapproximately5times.
£ HLB undertook initiatives to enhance thefinancial literacy among our customers withthe objective to educate customers and othergroups or communities on financial planningand management. Under Program CelikMuamalat, HLISB collaboratedwith the JohoreIslamicCollege(MARSAH)aspartofoursupporttowardsValue-basedIntermediationinitiatives.TheprogramwasheldinMarch2018atMARSAHwhere75students&lecturersfromthefacultyof Muamalah, attended the event where ourspeakerssharedontopicstocreateawarenessonIslamicFinanceandtheindustry.
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vii. product responsibility
Product responsibility andfair banking are about theresponsible developmentand marketing of financialproducts. This involvesthorough evaluation ofproducts before they arebrought to market andproper communication toconsumers of what theseproducts entail. We educatethe public and businessenterprisesabouttheproductsthatareavailableinthemarketso they are aware of theiroptionsandareabletomakeinformedchoicesinselectingproducts that will enhancetheirfinancialwell-being.
c. MaterIaL SuStaINabILIty MatterS (coNtINueD)
3. Importance and Management of Sustainability Matters (continued)
viii. Managing the environmental Footprint
We are concerned about environmental issues such aspollution and climate change which affects everyone’squality of life today and in the future. Although thefinancial services industry does not have a significantdirectimpactontheenvironment,webelieveinplayingourpartinminimisingasfaraspossibleourenvironmentalfootprintbyadoptingaresponsibleapproachintermsofresourceuse.Wealsoseektoensurethatouremployeesare awareof the role every individual canplay towardsprotecting and enhancing the environment. Our effortsto operate in an environmentally sustainable mannernot only serve to protect our natural resources but alsoprovideachannelthroughwhichouremployeescanworktogetherforacommongood,thusenhancingteamspiritandasenseofprideinbelongingtoHLFG.
Wemoved into thenewheadoffice,Menara Hong Leong (“MHL”), inthe second half of 2018. MHL is acertified Green Building. The MHLbuildingManagementimplementedaGreen Building Guideline to promoteawarenessofenergyconservationandtobettercontrolenergyconsumptionof the building’s operations. In orderto minimize electricity consumptionin MHL, several energy efficienttechnology have been installed suchas(1)photocellsensorsareinstalledinthebuildingtoactivatelightingwhenambient lighting levels are low; (2)motionsensorsforlightingareinstalledtoactivatelightingonlywhenroomisbeing occupied; (3) digital electricalsub-metersareusedtoefficientlytrackelectricity usage. (4) Carbon Dioxide(“CO2”) levels are being monitoredand controlled by introducing freshairmonitor system:whenCO2 levelsexceed800ppm,thesystemisactivated.
MaJor INItIatIveS/poLIcIeS FroM hLb:
£ AnynewproductorproductvariantthatHLBintroduceshas tobeapprovedbyHLB’sProductandEvaluationApprovalCommittee(“PEAC”)whichisalsoapplicableto its overseas subsidiaries (HLB subsidiaries andbranchesinVietnam,Cambodia,SingaporeandChina)and HLISB. The committee evaluates and scrutiniseseachproductsatlengthfromvariousanglesincludinggiving attention to compliance requirements fromvarious regulators prior making a final decision ontheproduct.
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3. Importance and Management of Sustainability Matters (continued)
viii. Managing the environmental Footprint (continued)
ix. environmental and Social assessment of products and Services
We strive to ensure that all our Group products andserviceshaveabalancedimpactontheenvironmentandthesocietiesweoperatewithin.Oneofourmajorthrustswithinthisareaisresponsiblelending.
Responsiblelendingisaboutensuringwe only support socially, financiallyand environmentally responsiblebusiness behaviour. It also meansconsidering the social implicationsofourproductsandservicesandnotfinancingindividualsororganisationswhose actions create negativeimpactsonsociety.
MaJor INItIatIveS FroM hLFG (coMpaNy LeveL):
£ HLFGGroupannual reports areproduced in compactdisc(“CD”)format.TheannualreportsforHLFG,HLBand HLCB are produced in CD format, except for asmallnumberofcopiestocatertoshareholderswhospecificallyrequestaprintedhardcopy.Thissavestheprintingofseveralthousandcopiesofannualreportseveryyear.
£ Recycling initiative: Paper and plastic productsconsumed within our office premises are placed inrecyclingbins.
£ To promote energy conservation and efficiency, ourstaffsareencouragedtoconserveelectricitywhereverpossible.
MaJor INItIatIveS/poLIcIeS FroM hLb:
£ InFY18,thetotalweightofrecyclablematerialusedin operation were 45,000kg, of which 15,000kg or33.33%wererecycledafterused.HLBoperationswillGo Green by reducing 54% on the cost of printingdocuments such as statements, notices, letters andremindersbyFY19.
£ The management had pledged and moved theinitiatives to reduce overall energy consumption by5%over threeyears;weaimed to reach this targetby2020.Withinthenextthreeyears,wewillreplaceall building lightings to LED types; and rationalizeour air-conditioning and chilled water. On electricityconsumption, we were successful in reducing thebuilding electricity consumption in PJ CITY, from9,254,162kwhin2017to8,823,559kwhin2018,a5%inelectricitysavingwithinayear.
£ Our efficiency also covers the non-renewableresources/fuel consumptionvolumeofour companyvehicles. For FY18, we observed a sharp reductionfrom4,272kJoulesin2017to2,841kJoulesin2018forourcompanyvehicles.
MaJor INItIatIveS/poLIcIeS FroM hLb:
£ In line with our empowerment and supportcorporates and SMEs involved in Green/Renewable Energy Project, the Bank haslaunchedaninitiativetoprovideRM500millionfinancing to corporate/SMEs on activities inrelations to renewable/sustainable energyfromFY18toFY22.
£ HLB also supported Bank Negara Malaysia’sinitiativetoprovidefinancingtoSMEsaffectedby disasters to assist them in resuming theirbusiness operations. The Fund is called theDisaster Relief Fund/Special Relief Fund.HLB for FY18 committed RM4.40 million forconventionalfinancingandRM0.85million forIslamic financing in line with Bank Negara’scampaign for Disaster Relief Fund/SpecialReliefFund.
MaJor INItIatIveS/poLIcIeS FroM hLcb:
£ To promote energy conservation and efficiency, ourstaffareencouragedtoconserveelectricitywhereverpossible.
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coNteNt INDex
proFILe DIScLoSure reFereNce paGe/expLaNatIoNS
report proFILe
• Reportingperiod 36
• Reportingscope 36
• Reportingcycle Annual
• Contactpointforquestions 66
GoverNaNce
• Governancestructureoftheorganisation 37
IDeNtIFIeD MaterIaL MatterS
• Materialmattersidentified 37 -38
• Processforidentifyingmaterialsustainabilitymatters 37
MaterIaL SuStaINabILIty MatterS
heLpING cLIeNtS SucceeD
Digital Innovation
• Digitalinnovationrelatedinitiativesthathavebeenimplementedintheorganisation 39
customer experience
• CustomerexperiencerelatedinitiativesthathavebeenimplementedintheDigitalorganisation
40
cyber Security & Data privacy
• CyberSecurity&DataPrivacyrelatedinitiativesthathavebeenimplementedintheorganisation
41
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MaterIaL SuStaINabILIty MatterS reFereNce paGe/expLaNatIoNS
provIDING our peopLe wIth the beSt opportuNItIeS
employee experience
• Employeeexperiencerelatedinitiativesthathavebeenimplementedintheorganisation
42
creatING StaKehoLDer vaLue
Good Governance
• Governancerelatedinitiativesthathavebeenimplementedintheorganisation 43
community banking
• Communitybankingrelatedinitiativesthathavebeenimplementedintheorganisation
43
product responsibility
• Productresponsibilityrelatedinitiativesthathavebeenimplementedintheorganisation
44
Managing environmental Footprint
• Environmentrelatedinitiativesthathavebeenimplementedintheorganisation 44 - 45
environmental and Social assessment of products and Services
• EnvironmentalandSocialAssessmentofProductsandServicesrelatedInitiativesthathavebeenimplementedintheorganisation
45
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CORPORATEINForMatIoN
dIRECTORS
ybhg tan Sri Quek Leng chan (Chairman)
Mr tan Kong Khoon (President & Chief Executive Officer)
Ms Lim tau Kien
Ms Lim Lean See
Mr Saw Kok wei
gROUP COmPANy SECRETARy
Ms christine Moh Suat Moi MAICSA7005095
REgISTEREd OffICE
Level30,MenaraHongLeongNo.6,JalanDamanlelaBukitDamansara50490KualaLumpurTel :03-20809888Fax :03-20809801
WEBSITE
www.hlfg.com.my
AUdITORS
PricewaterhouseCoopersPLT(LLP0014401–LCA&AF1146)CharteredAccountantsLevel10,1SentralJalanRakyatKualaLumpurSentral50706KualaLumpurTel :03-21731188Fax :03-21731288
REgISTRAR
HongLeongShareRegistrationServicesSdnBhdLevel5,WismaHongLeong18JalanPerak50450KualaLumpurTel :03-21641818Fax :03-21643703
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BOARd OfDIrectorS’ proFILe
ybhG taN SrI QueK LeNG chaNChairman/Non-Executive/Non-Independent
Age75,Male,Malaysian
Mr taN KoNG KhooNPresident&ChiefExecutiveOfficer/Non-Independent
Age61,Male,Singaporean
YBhgTanSriQuekLengChanqualifiedasaBarrister-at-LawfromMiddleTemple,UnitedKingdom.Hehasextensivebusinessexperienceinvariousbusinesssectors,includingfinancialservices,manufacturingandrealestate.
YBhgTanSriQuekistheChairmanofHongLeongFinancialGroupBerhad(“HLFG”)andwasappointedtotheBoardofDirectors(“Board”)ofHLFGon6September1968.HeisamemberoftheRemunerationCommittee(“RC”)andNominationCommittee(“NC”)ofHLFG.
HeistheChairman&ChiefExecutiveOfficerofHongLeongCompany(Malaysia)Berhad,apubliccompany;ChairmanofHongLeongBankBerhad(“HLB”),acompanylistedontheMainMarketofBursaMalaysiaSecuritiesBerhad(“BursaSecurities”);andChairmanof Hong Leong Assurance Berhad (“HLA”) and Hong Leong Foundation, both publiccompanies.He isalsotheChairmanof theCouncilofMembersofHongLeongBankVietnamLimited(“HLBVN”).
MrTanKongKhoonholdsaBachelorofBusinessAdministrationdegreefromBishop’sUniversity,CanadaandisanalumnusoftheHarvardBusinessSchoolAdvanceManagementProgram.HeisaCharteredBankeroftheAsianInstituteofCharteredBankers.
MrTanisthePresident&ChiefExecutiveOfficerofHLFG.HewastheGroupManagingDirector/ChiefExecutiveOfficerofHLBfrom1July2013to4February2016.Priortojoining HLB, Mr Tan was the Group Executive, Consumer Banking Group of the DBSBankLtd(“DBS”)from1December2010to15April2013whereheledandmanagedstrategyformulationandexecutionforconsumerbankinggloballyacrosstheDBSGroup.
MrTanbeganhisbankingcareerwithDBSin1981.Sincethen,hehassuccessfullybuiltconsumer banking franchises across multiple markets in Asia for Citibank, StandardCharteredBankandANZBank.
From March 2007 to December 2009, Mr Tan was President and Chief ExecutiveOfficerofBankofAyudhya,thefifth largestfinancialgroup inThailand listedontheThailandStockExchange.Thegroupbusinesses includedcommercialand investmentbanking,lifeandnon-lifeinsurance,stockbroking,assetmanagementandconsumerfinancesubsidiaries.
MrTanwasappointedtotheBoardofHLFGon5February2016.
Mr Tan is the Chairman of Hong Leong Capital Berhad and a Director of HLB, bothcompanieslistedontheMainMarketofBursaSecurities;andaDirectorofHLAandHongLeongInvestmentBankBerhad,bothpubliccompanies.HeisalsotheChairmanofHongLeongBank(Cambodia)PLCandChiefControllerontheBoardofControllersofHLBVN.
MS LIM tau KIeNNon-ExecutiveDirector/Independent
Age62,Female,Malaysian
MsLimTauKien isaCharteredAccountantregisteredwiththe InstituteofCharteredAccountantsofScotlandandisamemberoftheMalaysianInstituteofAccountants.
Ms Lim began her career with Ernst & Young, United Kingdom, before serving theMinistry of Finance and Prime Minister’s Department as a Federal Accountant. ShesubsequentlyjoinedtheRoyalDutchShellGroupwheresheheldvariousseniorfinancepositionsoveraperiodof25yearsinMalaysia,AustraliaandChina,herlastpositionbeing the Country Chief Financial Officer/Finance Director/Country Controller of theShellCompaniesofChinafrom2004to2008.
Ms Limhasbeenadirector of listedandnon-listed companies since1997andwasappointedtotheBoardofHLFGon8April2010andistheChairmanoftheBoardAuditandRiskManagementCommittee(“BARMC”)andamemberofNCofHLFG.
MsLimisalsoaDirectorofMalaysianPacificIndustriesBerhadandHengyuanRefiningCompanyBerhad,bothcompanieslistedontheMainMarketofBursaSecurities,andUEMGroupBerhad,apubliccompany.
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CORPORATE
51ANNUALREPORT
2018
BOARd OfDIrectorS’ proFILe
MS LIM LeaN SeeNon-ExecutiveDirector/Independent
Age65,Female,Malaysian
Mr Saw KoK weINon-ExecutiveDirector/Independent
Age55,Male,Singaporean
MsLimLeanSeeholdsanAssociateshipinAccountingandanAssociateshipinSecretarialandAdministrativePracticebothfromtheCurtinUniversity,Australia.Herprofessionalqualifications include being a Fellow of the Australian Society of Certified PracticingAccountants, Registered Accountant with the Malaysian Institute of Accountants, aTradeMemberofFinancialPlanningAssociationofMalaysiaandamemberoftheAsianInstituteofCharteredBankers.
MsLimhas33yearsofexperienceinthebankingindustryandhasheldvariousseniorpositions including the Head of Corporate Banking and Head of Business BankingDivision,thelastbeingtheChiefRepresentativeofaforeignbankRepresentativeOfficewiththecorporaterankofanExecutiveDirector.
MsLimwasappointedtotheBoardofHLFGon22August2011andsheistheChairmanoftheNCandRCandamemberofBARMCofHLFG.
MsLimisalsoaDirectorofHLB,acompanylistedontheMainMarketofBursaSecurities.
Mr Saw Kok Wei holds a B.Sc (Hons) in Accounting and Finance degree from theUniversityofWarwick,UnitedKingdom.MrSawiscurrentlytheChiefFinancialOfficerofJurongPortPteLtd,aleadinginternationalmulti-purposeportoperatorheadquarteredinSingapore.PriortojoiningJurongPortPteLtd,hewaswithElectroluxMajorAppliances–AsiaPacificfornineyearsduringwhichtimeheheldthepositionsofDeputyHeadofStrategy,AsiaPacific,basedinSingaporefromJuly2011toSeptember2013,ChiefFinancialOfficerofElectroluxChina,basedinShanghaifromOctober2008toJune2011,GeneralManagerofP.T.ElectroluxIndonesiafromJanuary2007toSeptember2008andbeforethatfromMarch2004toDecember2006,hewastheVicePresident,Finance&Administration–EastAsia.
BeforejoiningElectrolux,MrSawwaswithMerckSharp&Dohme(I.A.)Corpfrom2001to2003andNikeSoutheastAsia from1999to2001,whereheheld thepositionofFinanceDirectorinbothcompanies.
MrSawwasappointedtotheBoardofHLFGon22August2011andisamemberoftheBARMCandRCofHLFG.
Notes:
1. Family Relationship with Director and/or Major ShareholderNone of the Directors has any family relationship with any other Director and/or major shareholder of HLFG.
2. Conflict of InterestNone of the Directors has any conflict of interest with HLFG.
3. Conviction of Offences None of the Directors has been convicted of any offences (excluding traffic offences) in the past 5 years and there were no public sanctions or penalties imposed by the relevant regulatory bodies during the financial year ended 30 June 2018.
4. Attendance of DirectorsDetails of Board meeting attendance of each Director are disclosed in the Corporate Governance Overview, Risk Management & Internal Control Statement in the Annual Report.
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52ANNUALREPORT2018
HONG LEONG FINANCIAL GROUP BERHAD
KEySeNIor MaNaGeMeNt
Mr chew SeoNG auNGroupChiefFinancialOfficerofHongLeongFinancialGroup(“HLFG”)
Age54,Male,Malaysian
MrChewSeongAunobtainedaBachelorof Science (Eng) in Civil Engineering(Honours)degree in1986 from ImperialCollege, University of London and is anICAEW qualified Chartered Accountant(FCA)whichheobtainedsubsequentlyviatrainingandworkingwithKPMGLondon.
Mr Chew joined HLFG on 1 November2006asitsChiefFinancialOfficer(“CFO”)andispresentlytheGroupCFOofHLFG.
MrChewhasover30yearsofexperienceinfinanceandbanking.Hespent5½yearswithKPMGLondonandthenworkedwithGulf International Bank in their Londonand Bahrain offices for approximately6yearsofwhichhislastpositionwastheHead of F