On the domestic front, Malaysia's economic growth moderated to 4.2% year-on-year (“Y-o-Y) supported by sustained domestic demand and low unemployment rate even as inflationary pressure eased with the Consumer Price Index cooling to 2.4% in June 2023. But as a trading nation, our economy is exposed to further deterioration in global demand and the spillover effects of our largest trading partner China's weaker-than-anticipated economic growth.
Overall, the Group had successfully navigated through a challenging operating environment and delivered a set of commendable result for our shareholders. While we strive for growth, we will maintain our focus on the Group’s strong credit quality, careful management of all risks, stringent cost discipline and ensure that our actions are ESG compliant.
On that note, I am pleased to present our Annual Report and Audited Financial Statements of Hong Leong Financial Group Berhad (“HLFG” or “the Group”) for the ﬁnancial year (“FY”) ended 30 June 2023.
REVIEW OF THE YEAR’S PERFORMANCE
For the year under review, HLFG recorded a net profit attributable to shareholders (“PATAMI”) of RM2,791 million, 14% higher than the preceding financial year. HLFG’s earnings per share in FY2023 improved to 246.1 sen, from 216.3 sen in the previous financial year. The return on equity remained at 10.9%, while net assets per share rose by 10.3% from RM21.41 to RM23.62. In FY2023, the Board of Directors has declared a final dividend of 32 sen per share and combined with the interim dividend of 17 sen per share that was paid on 30 March 2023, the total dividend for FY2023 is 49 sen per share, higher than last year by 3 sen for a total dividend payment of RM562 million.
All key capital, liquidity and credit metrics remain sound and robust with policies in place to manage our franchise through any exceptional economic volatility.
In respect of the performances of our key businesses, Hong Leong Bank Berhad (“HLB”) net profit was RM3,818 million, higher by 16% y-o-y driven by recovery in trading income, robust contribution from its associated companies, lower loan impairment allowances as well as the normalisation of tax rates with the absence of last year’s prosperity tax (“Cukai Makmur”). The commercial banking business sustained its above industry loan growth with an 8% y-o-y expansion to its loan portfolio. In addition, the robust state of HLB’s financials is also supported by stringent cost control, asset quality discipline and effective management of funding mix. HLB continued to strategically invest in the digitalisation endeavour to provide a more interconnected financial services ecosystem to the customers.
For our Life Insurance business, Hong Leong Assurance Berhad (“HLA”) net profit improved by 11% y-o-y to RM284 million largely driven by the positive impact of higher long-term MGS rates. HLA’s gross premium contracted by 2% y-o-y to RM3,102 million due to consumer caution amid a challenging economic environment and competition from higher fixed deposit rates. The focus now is to revitalise our agency force as we accelerate the launch of new products to cater to the ever-changing needs of customers.
Outside of Malaysia, the Group’s general insurance business continued to fare better with HL Assurance Pte Ltd in Singapore delivering a 41% y-o-y increase in gross premium while our Hong Kong outfit, Hong Leong Insurance (Asia) Limited registered a commendable business premium growth of 20% y-o-y.
On the investment banking front, Hong Leong Capital Berhad (“HLCB”) reported a lower net profit of 31.2% y-o-y to RM50 million, dampened by higher interest rates, weak investor sentiment and thinner trading liquidity during the year. Profit contribution from Hong Leong Investment Bank (“HLIB'') was affected by the lack of larger deals, lower market activities and significantly lower trading volume on Bursa Malaysia by 25% y-o-y. Our fund management business under Hong Leong Asset Management Berhad (“HLAM”) recorded a decrease in net profits by 60% to RM7.6 million due to a contraction in the Money Market Funds segment as a result of the withdrawal of tax exemption for this category of funds. Nevertheless, HLAM continued to deliver good fund performance and was awarded with 20 individual Refinitiv Lipper Fund Awards Malaysia and Global Islamic.
Islamic Banking & Takaful Business
Malaysia is one of the leading global hubs of Islamic financing and is one of the faster growing financial business segments driven by increasing demand for Islamic finance products. Family Takaful penetration rate in Malaysia continues to rise with the wider acceptance of takaful products as preferred protection schemes.
Our Hong Leong Islamic Bank Berhad (“HLISB”) was successful in capturing new growth opportunities to register a net profit of RM425 mil which is higher by 43% y-o-y with encouraging financing book growth of 13% y-o-y to RM41 billion. The stellar performance was underpinned by topline growth and lower loan impairment allowances.
For Family Takaful, Hong Leong MSIG Takaful Berhad (“HLMT”) continues its strong trajectory with a 20% y-o-y growth in gross contribution to RM654 million in FY2023. Gross contribution from the agency channel grew by 37% y-o-y underpinned by new product innovation and robust agency recruitment. HLMT complements our Financial Group’s Islamic financial service franchise and offers attractive growth potential given that Takaful in Malaysia remains largely underpenetrated.
The Group’s philosophy embodies an entrepreneurial vision focused on building long-term sustainable value for all of our stakeholders. With value creation at the heart of our strategic priorities, we strive to add new dimensions and business lines to the Group.
Our business focus for the upcoming financial year and onwards will be to unlock wealth management opportunities, boost insurance distribution capabilities and strengthen foreign fund management capabilities. We will also continue to employ cutting-edge technologies and digital solutions for better insight into our businesses, simplify operational processes and most importantly, to enhance customer engagement experience.
Concurrently, we will continue to operate on a firm financial footing with prudent credit and liquidity discipline and effective strategic cost management.
Customer-Centric Digital Outreach
In the ever-evolving world of digital technologies, the banking industry has undergone significant transformation over the years and all players within the industry will continue to adopt newer technologies as they become available. Banks are actively modularising their legacy front-end technology stacks to enable the adoption of the latest cutting-edge solutions. While data analytics and chatbots have been transforming the banking landscape by providing customers with personalised banking experiences around the clock, the latest industry development places greater emphasis on the application of Artificial Intelligence and Machine Learning. The Group recognises the merits of innovative digital solutions for our customers but never at the expense of IT security. To that end, we are committed to continuously upgrade our service delivery and judiciously invest in technologies to protect the security of our customers data as part of our “Digital at the Core” strategy.
Our commercial banking business, HLB, is committed to invest in market-relevant capabilities. The priority is to find fresh approaches to leverage on technology in delivery of banking products and services. Today, HLB is serving 2.6 million or almost three-quarters of its retail banking customers digitally. In addition, more than 120,000 business customers' banking needs are fulfilled over their digital platforms.
Likewise, HLA has been judiciously redirecting its resources to invest in digital capabilities and to embrace the adoption of latest technologies to grow its customer base. Over the past 5 years, the total number of registered users for our insurance Customer Portal HLA360° has increased by three (3) fold to about 430,000. Additionally, they are also employing robotic process automation solutions in areas such as customer screening and data processing. Separately, both of our overseas general insurance businesses continue with their digital-led and data-driven business model with a sharp focus on enhancing their online distribution proposition.
Customers’ demand for a better digital experience has accelerated due to the rapid pace of change across the services industry. At HLCB, our investment banking outfit achieved a new milestone with the launch of a Shariah trading platform and its fully digitalised stockbroking account opening experience.
Digitisation remains a core part of the Group’s business strategy. In delivering long-term sustainable growth to stakeholders, HLFG is committed towards investing in digital capabilities and aspires to provide best-in-class touchpoints to customers across all our operating businesses.
Our employees are our most important asset; the future success of the Group has a direct correlation with the talent we have in our group of companies. The key to realising our vision is predicated on our commitment in attracting, nurturing and retaining talent. As, we continually seek to equip our employees with the right tools and capabilities to effectively drive change, we foster a work environment that promotes closer collaborations and shared values that can bind us together.
We value a working environment that makes every employee feel appreciated while embracing our diversity regardless of their age, religion, nationality, gender or background. Every employee has an equal opportunity to grow and succeed. To this end, the Group will continue to make investments in the professional development of our workforce to provide them with the skills needed to respond to the business environment's constant change.
High Standard of Governance
We are committed to upholding a high standard of governance, emphasizing corporate responsibility, transparency, and accountability by continuously enhancing our risk management frameworks to proactively address emerging risks, and adapting to the evolving needs of the dynamic operating environment. Our Board and management work collaboratively to align long-term sustainable strategies with the interests of our shareholders and stakeholders.
Our dedication is grounded in ethical business principles with zero tolerance for bribery and corruption. We foster a culture of compliance and integrity, adhering to best practices for accountability and transparency. For the Board to properly carry out its oversight functions and obligations, a corporate governance framework has been put in place. The Group Board Information and Technology Committee ("GBITC") provides oversight on technology matters and cyber security, while the Board Audit and Risk Management Committee ("BARMC") oversee matters involving risk management, compliance, and internal controls.
We implement comprehensive group-wide policies and procedures, including the Board Charter, Code of Conduct and Ethics, Anti-Bribery and Corruption Policy (ABC), Gifts and Entertainment Policy, and Whistleblowing Policy. Regular reviews were carried out to ensure effectiveness. Transparent communication and understanding are crucial across the organization, with employees attesting to key policies. Compliance controls are diligently monitored, with results reported to the relevant committees. In-house and external training sessions further enhance governance awareness among directors and employees.
OUR SUSTAINABILITY ENDEAVOR
The Board and Management of the Group is firmly committed to sustainable corporate governance and stewardship. We are guided by our corporate values to make the right decisions that will hold us in good stead today and in the future, improving the well-being of our people, our communities and the environment that we live in. It is our priority to entrench sustainability principles throughout the Group and integrate the same into every aspect of our operating footprint.
The effects of climate change are becoming increasingly noticeable in Malaysia. In recent times, the country has been experiencing extreme weather events with the latest being the floods in Johor which affected over 50,000 of our countrymen. It is imperative for us to act and do our part in the global efforts in arresting broader environmental degradation caused by climate warming.
In FY2023, the Group has expanded our coverage of GHG emissions monitoring to include Scope 3 employees commuting. Collectively, our footprint has reduced the combined GHG emission by 18% over the past four (4) financial years. On 19 June 2023, HLFG was recognised for its efforts in embracing sustainability with an improved score and continues to be a constituent of the FTSE4Good Bursa Malaysia index for the 5th consecutive year.
Across the Group, our key operating entity, HLB has been recognised through the Special Award for Sustainable Energy Financing by Domestic Bank in 2022 for their renewable energy financing commitment which reached an approved sum of RM3.2 billion at the end of FY2023. In the same period, in its effort to strengthen the commitment to low carbon transition, HLB became a signatory to the Partnership in Carbon Accounting Financials (“PCAF”) and started monitoring financed emissions.
During the year, our insurance division, HLA, has accelerated its endeavour of becoming a leading sustainable life insurer in Malaysia with the unveiling of an ambitious sustainability campaign, ‘Saving Our Planet Saves Us’. Several sustainable initiatives under the campaign encompasses the launch of HLA Global ESG Fund, reduction of GHG emissions, roll out of eco-friendly practices, climate awareness education and community outreach programmes.
Additionally, HLA has also integrated ESG considerations into its investment process guided by BNM’s Climate Change and Principle-Based Taxonomy (“CCPT”) and will monitor its investment portfolio to shift towards climate-friendly investments that share the same values toward building sustainable business practices.
Last year, the Group’s investment banking division introduced the Sustainability Framework which is guided by four central pillars, namely Engaging on Sustainability, Addressing Climate Change, Strengthening Internal Capabilities and Impactful Digitalisation. On 19 December 2022, HLCB was admitted to the Bursa Malaysia FTSE4Good Index, a recognition of its efforts in embracing sustainability. Our asset management company, HLAM launched its Shariah-compliant ESG fund, namely Hong Leong Global Shariah ESG Fund, to provide access to sustainable investing to its client base.
As we strive for greater integration of the sustainability agenda in the way we operate, the focus is to grow our Group responsibly and at the same time, contribute positively to our environment, customers, employees and communities.
At the time of writing, the global economy’s near-term outlook remains uncertain and is anticipated to soften amid weaker global demand and elevated inflation. Although there are signs that interest rate upcycle is nearing its peak, the prospect of a pause in rate hike remains uncertain with the recent rally in crude oil prices that may fuel further inflationary pressure. The International Monetary Fund (“IMF”) has projected global GDP to moderate from 3.5% in 2022 to 3.0% in 2023 and 2024. Likewise, Malaysia’s trade-reliant economy, sensitive to these macroeconomic headwinds is expected to moderate but remain on a positive trajectory, supported by resilient domestic demand, healthy labour market conditions and investor-friendly initiatives by the Malaysian government to spur both domestic and foreign direct investments.
The Group’s fundamentals and financial position remain solid backed by robust capital and healthy liquidity levels, prudent cost management and uncompromised credit discipline. Moving forward, we shall continue to invest in our human capital, accelerate our digitalisation transformation while keeping a sharp focus on risk management and further integrate ESG considerations into the way we conduct our business to deliver sustainable business performance and long-term value for all stakeholders.ACKNOWLEDGEMENTS
I would like to take this opportunity to extend my heartfelt thanks and appreciation to my fellow Board members for their insightful wisdom and support. Our employees, who deserve special acknowledgement for their dedication and commitment to upholding the Group’s core values. Special recognition to our senior management team for their invaluable contribution through all our endeavours./p>
Finally, I would like to express my gratitude to our regulators, government authorities, shareholders, customers, business partners and the community we serve for their continued faith and confidence in Hong Leong Financial Group.
QUEK LENG CHAN
20 September 2023