hong-leong-bank-annual-report-2018.pdf - Bank Berhad w w w h l b c o m m y As part of Hong Leong Bank\u2019s support for environmental sustainability this

hong-leong-bank-annual-report-2018.pdf - Bank Berhad w w w...

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Unformatted text preview: Bank Berhad w w w. h l b . c o m . m y As part of Hong Leong Bank’s support for environmental sustainability, this Annual Report is printed on Forest Stewardship Council (FSC) certified paper and recycled paper. Bank Berhad A NN UA L RE P O RT 2 01 8 Hong Leong Bank Berhad (97141-X) Level 19, Menara Hong Leong 6, Jalan Damanlela, Bukit Damansara 50490 Kuala Lumpur Tel : 03-2081 8888 Fax : 03-2081 7801 A NNU A L R EPOR T 2 0 1 8 Scan the QR Code by following these simple steps: Get it Download the “QR Code Reader” app from Google Play (Android Market), BlackBerry AppWorld, App Store (iOS/iPhone) or Windows Phone Store Run it Scan the QR code to visit our website. Run the QR Code Reader app and point your camera at the QR Code Access it Get access to Hong Leong Bank Berhad’s website corporate 02 Vision 67 Sustainability Statement 04 The Business 83 Corporate Information 06 Awards & Accolades 84 Notice of Annual General Meeting 08 Hong Leong Bank Story 87 Statement Accompanying Notice of Annual General Meeting 88 Board of Directors’ Profile 92 Key Senior Management 96 Board Audit Committee Report 99 Board Risk Management Committee (BRMC) Report 102 Corporate Governance Overview, Risk Management & Internal Control Statement 10 Corporate Milestones 12 Chairman’s Statement 18 Five Year Group Financial Highlights 20 Group Managing Director/ Chief Executive Officer’s Review 30 Management Discussion & Analysis WHAT’S INSIDE FINANCIALS 118 Directors’ Report 275 Statutory Declaration 128 Statements of Financial Position 276 Independent Auditors’ Report 129 Statements of Income 281 Basel II Pillar 3 Disclosures 130 Statements of Comprehensive Income 131 Statements of Changes in Equity ADDITIONAL INFORMATION 135 Statements of Cash Flows 327 Other Information 139 Notes to the Financial Statements 338 Local & Overseas Branches 275 Statement by Directors • Form of Proxy VISION Highly digital and innovative ASEAN financial services company 04 ANNUAL REPORT 2018 HONG LEONG BANK BERHAD the business Digital and innovation is part of the Hong Leong Bank culture, in line with our vision to be a highly digital and innovative financial service provider guided by its ethos of being digitalat-the-core, centred around customer experiences and the growing demand and expectation for digital based services, products and solutions. Hong Leong Bank (“HLB”) stands proudly as a leading financialservices institution based in Malaysia, providing regional services of a wide range of comprehensive and innovative financial solutions. These services are delivered through both digital and traditional means, via online and mobile banking, as well as its digital branch concept designed to provide customers with an efficient and seamless experience aided by technology. HLB’s extensive branch network extends beyond Malaysian borders with one branch each in Singapore and Hong Kong respectively, four branches in Vietnam, five branches in Cambodia, and a representative office in Nanjing, China, as well as a full-service call centre and more than 1,100 self-service terminals. Wealth Management services are offered through branches in Malaysia, Singapore and Hong Kong, in addition to various Priority Banking centres located throughout Malaysia and one in Singapore. As the service and financial landscape changes rapidly with the ever-increasing use of technology, staying attuned to customers’ needs and desires becomes even more critical to HLB’s operations. To stay ahead of these dynamic changes, the Bank has adopted the approach of reimagining banking by embedding digital considerations and customer centricity in every aspect of our operations, from products and services as well as customer care and engagement. HLB’s ethos of being Digital-At-The-Core that is powered by customers-at-the-forefront has led and will continue to lead us to innovate offerings in line with our aspiration of being a highly digital and innovative financial services organization. The Bank constantly looks at ways to leverage on technology to increase efficiency and productivity towards improving the overall customer experience, as well as to upskill employees’ competencies and skill sets in this ever-changing financial industry landscape, so that we have a “fit for the future” workforce. The digital ambition of HLB is to enable the customers to live life uninterrupted, able to perform their banking and financial needs – simpler, better, intuitively and tailored to their preferences. HONG LEONG BANK’S KEY BUSINESS PILLARS ARE: Personal Financial Services Business and Corporate Banking Global Markets Islamic Financial Services Providing financial products, wealth management, and priority banking services to individuals including property, auto and personal loans, payment products, share financing, investment and insurance, as well as deposit and remittance services. Principal business activities include the provision of banking solutions such as deposit and loan services covering business current account, interest-bearing auto-sweep as well as fixed deposit, and financing options ranging from asset acquisition, working capital, and debt capital market structures, for our corporate, commercial and SME client base. HLB also specializes in the provision of transaction banking solutions via cash management, trade financing and services. Principal activities include assisting customers to meet their investment and hedging needs through various treasury products, ranging from foreign exchange, money market, derivatives including interest rate swaps and interest rate swap options, to structured investment products. Islamic Financial Services are offered by Hong Leong Islamic Bank, a wholly-owned subsidiary of HLB which is focused on providing Shariah-compliant Personal Financial Services, Business and Corporate Banking, and Global Markets products and services. 05 ANNUAL REPORT 2018 CORPORATE the business REGIONAL FOOTPRINT In line with our growth strategy, HLB has been expanding its footprint in the Asian region. Singapore Operations HL Bank, Singapore is a full banking license branch offering wealth management, treasury services, deposit products and auto loan services. We have embarked on a transformational journey towards an integrated business model, expanding into health banking, corporate banking for commercial clients and expanded consumer lending propositions. Hong Kong Operations The Bank’s branch in Hong Kong offers Treasury and Wealth Management products and services. It is also the first bank in Hong Kong to launch an Islamic banking window. Vietnam Operations Hong Leong Bank Vietnam Limited (“HLBVN”), a subsidiary of the Bank, commenced operations in October 2009. HLBVN is a full-fledged commercial bank in Vietnam whose principal activities include provision of retail loans, deposit products, wealth management, and priority banking services to individuals. Whereas business banking solutions include working capital and term loans, deposit and liability management products and trade finance services as well as foreign exchange (“forex”) and money market services. To date HLBVN has a branch and transaction office located in Ho Chi Minh City, and a branch each in Bin Duong and Hanoi. “To stay ahead of these dynamic changes, the Bank has adopted the approach of reimagining banking by embedding digital considerations and customer centricity in every aspect of our operations, from products and services as well as customer care and engagement.” Cambodia Operations In July 2013, Hong Leong Bank (Cambodia) PLC (“HLBCAM”) commenced operations as a 100% wholly owned subsidiary providing comprehensive financial services covering consumer banking, business banking, global markets and transaction banking services. With five full-fledged branches located in Phnom Penh, HLBCAM’s primary customer focus is towards established SME and Commercial corporate customers, high net worth individuals, affluent and emerging affluent as well as tech savvy young professionals. Investment in China HLB was the first Malaysian bank to enter the Chinese banking sector in 2008 with a strategic investment in Bank of Chengdu Co., Ltd (“Bank of Chengdu”) and has an 18% stake in the company. Bank of Chengdu is a leading city commercial bank in Western and Central China based in Chengdu, the capital of Sichuan Province. In March 2010, the joint venture company between HLB and the Bank of Chengdu obtained regulatory approval to establish a consumer finance business in Chengdu. In November 2013, HLB had set up a representative office in Nanjing which commenced operations in February the following year. 06 ANNUAL REPORT 2018 HONG LEONG BANK BERHAD awards & accolades 6 7 8 1 4 5 10 2 3 9 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, 2017 The International Banker 4. HIGHEST RETURNS TO SHAREHOLDERS OVER 3 YEARS – GOLD AWARD, 2017 The Edge – Billion Ringgit Club 5. HIGHEST RETURN ON EQUITY OVER 3 YEARS – SILVER AWARD, 2017 The Edge – Billion Ringgit Club 6. MOST INNOVATIVE TECHNOLOGY ADOPTION – GOLD AWARD MALAYSIAN CONTACT CENTRE AWARDS 2017 Contact Centre Association of Malaysia 7. BEST SOCIAL MEDIA OF A CONTACT CENTRE – GOLD AWARD MALAYSIAN CONTACT CENTRE AWARDS 2017 Contact Centre Association of Malaysia 8. BEST NEW CONTACT CENTRE – GOLD AWARD MALAYSIAN CONTACT CENTRE AWARDS 2017 Contact Centre Association of Malaysia 9. BEST INBOUND CONTACT CENTRE ABOVE 100 SEATS – MERIT AWARD MALAYSIAN CONTACT CENTRE AWARDS 2017 Contact Centre Association of Malaysia 10. BEST USE OF CEM TECHNOLOGY – GOLD AWARD, 2017 International Quality and Productivity Centre 07 ANNUAL REPORT 2018 CORPORATE awards & accolades 19 18 20 16 17 15 11 12 13 11. ASIA’S BEST FIRST TIME SUSTAINABILITY REPORT FINALISTS 2017 Asia Sustainability Reporting Awards 12. ASIA’S BEST DIGITAL WORKFORCE FINANCIAL INSIGHTS INNOVATION AWARDS 2018 IDC Financial Insights 13. Fintech Personality of The Year, 2018 Malaysia Fintech Awards 14. OUTSTANDING CONTRIBUTION TO MYDEBIT MALAYSIAN E-PAYMENTS EXCELLENCE AWARDS 2018 PayNet 15. Best Graduate Recruitment Programme – Bronze Award Recruitment AwardS 2018 Human Resource Asia 14 16. THE BEST CASH MANAGEMENT PROJECT IN MALAYSIA BANKER’S CHOICE AWARDS 2018 The Asian Banker 17. THE BEST FINANCIAL SUPPLY CHAIN MANAGEMENT IN MALAYSIA BANKER’S CHOICE AWARDS 2018 The Asian Banker 18. MALAYSIA’S BEST BRAND, 2018 CMO Asia 19. TOP BANK IN THE SECONDARY MARKET CORPORATE BONDS MALAYSIA – RANK 3 ASIAN LOCAL CURRENCY BOND Benchmark REVIEW 2017 The Asset 20. TOP BANK IN THE SECONDARY MARKET GOVERNMENT BONDS MALAYSIA – RANK 3 ASIAN LOCAL CURRENCY BOND Benchmark REVIEW 2017 The Asset 08 ANNUAL REPORT 2018 HONG LEONG BANK BERHAD hong leong bank story Hong Leong Bank Berhad (“HLB” or “the Bank”) is listed on Bursa Malaysia Berhad and forms part of the Hong Leong Group. Headquartered in Kuala Lumpur, the Bank has a strong Malaysian entrepreneurship heritage. HLB was originally incorporated as Kwong Lee Mortgage and Remittance Company in 1905 in Kuching, Sarawak and later as Kwong Lee Bank Limited in 1934, bearing heritage of the oldest local financial institution in Malaysia. Kwong Lee Bank Berhad was acquired by the MUI Group in May 1982 and renamed Malayan United Bank Berhad on 2 February 1983. In 1989, it was renamed as MUI Personal Financial Services Business & Corporate Banking Bank. Under the MUI Bank banner, it grew from 11 to 35 branches nationwide. On 3 January 1994, Hong Leong Group acquired MUI Bank Berhad through Hong Leong Credit Berhad (now known as Hong Leong Financial Group Berhad) and renamed it Hong Leong Bank Berhad. The Bank was listed on the Kuala Lumpur Stock Exchange (now under Main Market of Bursa Malaysia) on 17 October 1994 and since then has grown by leaps and bounds, organically as well as through mergers and acquisitions. Its merger with EON Bank Group in 2011 placed HLB as Malaysia’s fifth largest banking group; with over RM200 billion in assets as at 30 June 2018. Global Markets Islamic Banking 09 ANNUAL REPORT 2018 CORPORATE Incorporated in 1905: Kwong Lee Mortgage and Remittance Company in Kuching, Sarawak Locations: • Malaysia (HQ) (Listed on Bursa Malaysia) • Singapore • Hong Kong • Vietnam • Cambodia • China Key Focus Areas Talent Customers Community Technologically focused: Entrepreneurship Strong Entrepreneurial Heritage Digital at the Core, People at the Forefront Channels Mobile Banking Internet Banking Branches Self Service Terminals Call Centre core values Here for the long term Innovation Collaborate to win Decisiveness Have fun 10 ANNUAL REPORT 2018 HONG LEONG BANK BERHAD corporate milestones 2013 1905 2008 Started in Kuching, Sarawak, Malaysia, under the name of Kwong Lee Mortgage and Remittance Company Entered China Banking Sector with a 20% strategic stake in Bank of Chengdu Co., Ltd. • Hong Leong Bank Cambodia commenced its operations • Set up representative office in Nanjing, China 1989 2011 Renamed as MUI Bank, operating with 35 branches Hong Leong Bank completed merger with EON Bank Group Intensified digitization of Hong Leong Bank’s products and services 1934 2009 2014 Incorporated as Kwong Lee Bank Limited Hong Leong Bank Vietnam opened its doors in Ho Chi Minh City Launched new Internet Banking platform, PEx payment, tablet app and cardless withdrawal 1994 2012 • Acquired MUI Bank through Hong Leong Credit Berhad (Now known as Hong Leong Financial Group Berhad) Launched Mach by Hong Leong Bank, a next generation Banking sub-brand • Renamed as Hong Leong Bank Berhad 11 ANNUAL REPORT 2018 CORPORATE corporate milestones 2015 • Launched new platform for business internet banking to replace HLOB (Hong Leong Online Business), Applewatch app, e-FD & e-TDI, e-Will/ Wasiat and Biometric authentication • Introduced physical PEx+ Merchant Payment 2018 • Rolled out Robotic Process Automation projects. 2017 • Piloted in-branch mobile servicing solution featuring iPad-equipped service ambassadors to greet and service customers • Launched HLB LaunchPad to nurture Malaysian technology and FinTech start-ups • Introduced eFD via FPX 2016 • First domestic bank to enable FPX payment allowing customers to conduct transactions 24/7 via Hong Leong Connect BIZ • Launched Artificial Intelligence Chat Service using IBM Watson, E-TT and online statement • Supercharged innovation through the setting up of a Customer Experience and Innovation Lab • Moved to online platforms for auto and personal loans, credit card & CASA (Current Account & Savings Account) opening applications • PEx+ Merchant Payment went online • Launched comprehensive online banking platforms for corporate, commercial and SME banking (Hong Leong Connect First). • Introduced, for the benefit of eLearning for all employees, a peerto-peer, knowledge sharing mobile platform application which incorporates fun elements of gamification in the learning journey (SmartUp). • Established the first Hong Leong Bank Digital Concept flagship branch in Damansara City, featuring Personalized Teller tablets, Teller Assisted Units and a Discovery Zone interactive digital platform. • Piloted Multi-lingual Robot Concierge services at Damansara City Priority Banking Branch • Introduced a virtual assistant Artificial Intelligence chatbox on our employees’ digital devices (HALI) to provide answers on Human Resources and Branch Operations Support policies and procedure queries. • Rolled out Digital Business Solutions and SMElite Financing facilities for SMEs. 12 ANNUAL REPORT 2018 HONG LEONG BANK BERHAD chairman’s statement Hong Leong Bank (“HLB” or “Bank”) made important strides both financially and digitally in the 2018 Financial Year (“FY2018”). During the year, we achieved new milestones in profits and total assets. The Bank made RM2,638 million in net profit in FY2018, our highest ever and 23% better than the previous year. This was largely due to our robust growth in non-interest income and prudent loan pricing coupled with improved cost management. Total assets stood at RM202.9 billion, crossing the RM200 billion mark for the first time. The Bank’s careful and responsible stewardship continues to deliver sustainable growth with steady top-line performance and effective cost control. This includes intensifying our income diversification and implementing our sustainability and digitization initiatives, which improved our cost-to-income ratio. We expect that the group’s performance during FY2019 will benefit from steady growth in both the global and Malaysian economies. The Malaysian economy remained healthy and expanded at a good pace of 5% in the first half of 2018, underpinned by continued expansion in private consumption and exports. The global economy is expected to continue to grow in 2018 and support demand for Malaysian exports. This export demand should have spill-over benefits to other domestic sectors. 35.5% over 5 years share price RM18.20 for FY2018 Outperformed FBM KLCI Index by 40.1% FBM KLFin Index by 36.9% The Malaysian economy is expected to continue its growth momentum, albeit at a more moderate level in the second half of 2018 despite potentially challenging domestic and external conditions. However we expect policy reforms and prudent fiscal management to strengthen the Malaysian economy which augurs well for the future. We are also mindful of geopolitical and other risks, chiefly the development of new US trade policies which could possibly precipitate a trade war between the US and China and/or other economies around the world. ECONOMIC CONDITIONS The global and Malaysian economy remained in good shape in FY2018. The Malaysian economy remained fundamentally sound, supported by domestic demand and continuous expansion in exports. Inflation also stayed benign and the nation’s current account surplus and ample foreign reserves should help the nation weather any unforeseen external shocks. The country’s financial markets also demonstrated resilience in the face of volatilities such as the sell-down that rocked global equity markets in March. The Malaysian banking sector remained healthy and well capitalized. This allowed the banking sector to play a vital role in supporting national economic growth over the past year. There were however also significant political and economic developments in Malaysia and across the world in FY2018. Malaysia experienced an unprecedented change in government in May 2018, its first since gaining independence in 1957. Some major European countries such as France also experienced a change of guard. Globally influential central banks – namely the US Federal Reserve and Bank of England – opted to normalize their very low interest rates, impacting capital flows to emerging markets. During the year, Malaysia also adjusted its Overnight Policy Rate (“OPR”) upwards by 25bps to 3.25% in January 2018. 13 ANNUAL REPORT 2018 CORPORATE chairman’s statement BUILDING LONG-TERM VALUE The year was not without its challenges as an array of regulatory and economic factors came into play. As a bank, we were ready to meet higher capital adequacy requirements on top of increasingly stringent compliance standards. Our competitive landscape too has shifted. No longer are we competing only with conventional financial institutions, but now have to increasingly respond to the disruption posed by FinTech start-ups. The Group is however well positioned to not only overcome these challenges but grow stronger from it. For example, rather than viewing FinTech as a threat, we are learning, and in some cases, collaborating with FinTech, becoming even more entrepreneurial and competitive in the process. Our underlying key operating metrics remain solid. They are underpinned by a combination of prudent loan pricing and judicious funding cost management. Our results also showed a healthy non-interest income contribution an...
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