Chairman Statement

The year 2012 was once again marked by financial market volatilities as the Eurozone continued to grapple with unresolved sovereign debts and the US with a mounting fiscal cliff. Despite subdued global conditions, however, investors’ risk appetite returned driven by continued liquidity and easy money in advanced economies. Along with concerted efforts of governments all over the world to ease monetary policies, there was massive equity fund flow into emerging markets, including Malaysia.

The economy in Malaysia was boosted by stronger than expected domestic demand and a robust services sector to achieve GDP growth of 5.6%. Though higher than the GDP growth of 5.1% in 2011, it still reflected a slowdown in net exports and manufacturing.

While the current scenario was challenging to financial companies, AFFIN Holdings Berhad (AHB) was able to record positive growth as a result of sound business fundamentals. This provides us with great confidence to further grow our products and services as we explore new and exciting business horizons.

The Group’s performance as a whole reflected the individual performances of our subsidiaries and associate company to present a highly commendable report card for the year. AHB achieved a 17.6% increase in pre-tax profit from RM709.1 million in 2011 to RM833.7 million. This was mainly due to an increase in net interest income, Islamic banking income and other operating income totalling RM140.5 million, a higher share of profit of RM28.5 million from our associate company, AXA AFFIN General Insurance Berhad, and a higher write-back of allowance for loan impairment of RM10.5 million. Our earnings per share (EPS) increased to 42.08 sen as compared to 33.99 sen in 2011.

As a result of our strong performance, the Board of Directors declared and paid an interim dividend of 15% per share (franked dividend of 11.0 sen less 25% tax and a tax exempt dividend of 4.0 sen per share) on 28 December 2012. This was in line with a new policy, adopted in 2012, to pay a minimum dividend based on 50% of the Company’s profit after tax for each financial year, provided that the distribution would not be detrimental to our cash requirements or any plans approved by the Board. This policy was developed to maintain a consistent and regular stream of returns to our valued shareholders.

Despite the challenging environment, all our subsidiaries continued to perform very well, and it gives me pleasure to summarise their operational and financial performance for the year.


ABB Group once again achieved yet another very positive performance. In the face of compressed net interest margins (NIMs) and intense competition, it managed to achieve 19.4% growth in profit after tax and zakat from RM440.0 million in 2011 to RM525.3 million. Its total assets expanded by 5.9% from RM49.2 billion to RM52.1 billion, while gross loans and advances grew by 12.2%, return on equity (ROE) after tax was 14.1% and the Bank achieved a cost to income ratio of 45.2%. ABB also grew its total deposit portfolio by 13.2% from RM36.5 billion in 2011 to RM41.3 billion in 2012. Continued focus on asset quality led to a lower net impaired loan ratio of 1.1% as compared to 1.2% in 2011.

The focus at ABB during the year was on growing the Bank’s business and market presence. Building on the  success of the O.M.G. deposit campaigns from previous years (O.M.G and O.M.G It’s Back!), ABB launched its O.M.G The Trilogy campaign from July to December 2012. This aimed to increase savings, current and fixed deposits among new and existing conventional and Islamic account  holders.


In collaboration with Permodalan Nasional Berhad (PNB), ABB also introduced a 24-hour, online ASNB Top-Up facility on 31 May 2012, making it one of only four banks in Malaysia to enable customers to increase their ASNB fund subscription online and the second bank to provide this service 24/7. Further technological innovations were seen in a new Loan Origination System to hasten the processing of loan applications and an enhanced Retail Internet Banking system to afford customers greater convenience during online transactions.

Three new branches were opened in Bangi, Klang and Cyberjaya, all in Selangor, bringing the network strength to 100 branches nationwide. In addition, three branches were strategically relocated to Ara Damansara and Puchong, in Selangor, and Muar, Johor, while 15 additional off-site ATMs were installed.

ABB’s continuous efforts to improve its service delivery and enhance its relationship with customers led to several wins during the year. These included being ranked among the Top 30 Most Valuable Brands by the Association of Accredited Advertising Agents (4As), and
being named the


Best of Malaysia Service to Care Champion in the category of Conventional Banks with assets less than USD20 billion. The latter was awarded by MarkPlus Insight in conjunction with the Philip Kotler and the Christopher Lovelock Centre for Services Marketing.

Meanwhile, AFFIN Islamic Bank Berhad (AiBB), a 100% subsidiary of ABB, also achieved very encouraging results, with a 22.3% increase in total net income from 2011 to RM204.0 million, contributing to a 48.2% increase in profit after zakat and tax to RM73.8 million. There was a 20.9% increase in customer deposits to set a record high of RM9.0 billion. Meanwhile, total net financing,  dvances and other financing increased by 17.6% to reach RM5.1 billion with the retail sector contributing to 65% of this growth.

The year under review saw AiBB expanding its mortgage and car financing businesses, introducing new Syariah based products and growing its feebased as well as recurring income businesses. It also focused on  developing its low cost deposits and retail deposits. In February 2012, AiBB opened its eighth full-fledged branch in Bangi, Selangor.



AIBB Group registered a profit before tax (PBT) of RM91.1 million for the financial year 2012 compared with RM88.9 million in 2011. Operating income grew 28.3% to RM84.7 million (2011: RM66.0 million) contributed mainly by growth in fee income (18.1%) and investment income (51.0%). The Group continued to  improve its non-interest income ratio which stood at 71.8% as at 31 December 2012.

AIBB continued its retail stockbroking business expansion with the opening of its 6th branch in Bandar Bukit Tinggi in Klang in the first quarter of 2012, tapping on potential of 80,000 (residents) population and growing within the Bandar Bukit Tinggi township alone.

AIBB continued to strengthen its position in the corporate finance and debt capital markets and was involved in several notable transactions in 2012. It was the principal adviser, underwriter and joint placement agent to Gabungan AQRS Sdn Bhd’s Initial Public Offering (IPO) of RM108.6 million. AIBB was also involved in the arrangement of a total of RM12.9 billion in debt fund raising in 2012.

It successfully completed a RM900 million structured bonds issue comprising RM272 million senior bonds and RM628 million guaranteed bonds for Mecuro Properties Sdn Bhd in its capacity as the principal adviser and lead arranger. This landmark transaction saw RM628 million of the RM900 million bond issue being creditwrapped by two guarantors, Danajamin Nasional Berhad and RHB Bank Berhad. In addition, AIBB was the joint mandate lead arranger for a Syndicated Term Loan of RM720 million for 1Malaysia Development Bhd, as well as the joint mandated lead arranger for the Syndicated Facilities (Phase I Facilities) of up to RM2.1 billion for Boustead Naval Shipyard Sdn Bhd of which it garnered an IFN Project Finance Deal of the Year award


AIBB’s efforts were justly rewarded when it was rated by London-based The Financial Times and StarMine as the Top Stock Picker for Healthcare, Food, Household & Personal Products, Consumer Goods & Services and second best Top Stock Picker for Banks. Meanwhile, an AIBB research analyst’s call on a technology stock made the cut under The Edge Best Analyst Call Awards 2012.
AIBB’s fund management arm, AFFIN Fund Management Berhad (AFMB), recorded a 38.7% increase in PBT from RM6.2 million in 2011 to RM8.6 million. In July 2012, AFMB launched AFFIN 1Wholesale Fund and AFFIN 1-iWholesale Fund, bringing the total assets under management (AUM) to 10. As at end 2012, its total AUM stood at RM1.93 billion, an increase of 125.7% from RM855 million at end 2011.

AFMB further expanded its distribution channels through an agency sales team while it enhanced its collaborative efforts and marketing activities with the AFFIN Group. AFFIN  MONEYBROKERS SDN BHD (AMBSB) Despite the global economic uncertainties, AMBSB managed to increase its revenue from the derivatives, money market and Islamic sections. Fixed Income contributed the most to brokerage revenue with RM2.7 million, followed by Foreign Exchange (RM2.5 million), Derivatives (RM2.1 million), SWAP/ACU (RM2.0 million), Money Market (RM1.9 million) and the Islamic Section (RM0.6 million). At the same time, the company managed to grow its net assets by 7.1% to RM11.3 million. However, its net turnover decreased by 3.2% from RM12.6 million in 2011 to RM12.2 million, due to dampened trading volume. Consequently, net profit dipped to RM1.9 million, down from RM2.4 million in 2011.

AMBSB continued to adopt new technologies to further improve productivity and operational efficiency, and is in the process of testing Odd Day Swap, which it intends to introduce to the market in the near future. Meanwhile, an e-Trade broking software is in the final stages of  testing.


Towards enhancing its workforce, AMBSB continued to reinforce Continuing Professional Education for its licensed capital markets service representatives. It will also be focusing on team-building to improve staff engagement and productivity.


In 2012, AALI B increased its gross premium by 15.1% to RM229.3 million. This was the result mainly of weighted new business premium of RM100.2 million. Accordingly, AALIB recorded a pre-tax profit of RM3.9 million, a marked turnaround from the pre-tax loss of RM3.1 million in 2011. Also contributing to the improved earnings were higher investment income and realised gains as well as tighter cost management. Management  expenses grew 1.7% to RM64.8 million compared with RM63.7 million in the preceding year. Despite the low interest rate environment, AALI B managed to grow and remain well-capitalised, with a capital adequacy ratio above the  minimum supervisory requirement.

AALIB continued to invest in growing its agency force, forging closer ties with its bank partners and looking into new areas to enhance its revenue stream. For customers and distributors, operational excellence with a comprehensive range of product offerings remained top priority. The Wealth Protector and Wealth Invest investment linked plans were expanded with a wider choice of riders to cater to education, retirement and protection. At the same time, its focus on health was emphasised through a nationwide campaign themed Health for LIFE.

Having increased its agency force by 69% in 2011, AALIB’s focus in 2012 was on improving sales and productivity. In addition to continuous training and motivation sessions, AALIB launched an AXA AFFIN Multimedia Recruitment Kit and Star System to present a rewarding career path to its agents.








Following a year in which the focus was on consolidating the newly acquired BH Insurance (Malaysia) Berhad, AXA AFFIN General Insurance Berhad (AAGIB) closed 2012 with an 18.1% increase in gross written premium of RM826.9 million from RM700.4 million in 2011. The Motor and Health Insurance segments in particular performed very well, exceeding their growth targets. AAGIB’s profit before tax also increased significantly from RM20.5 million in 2011 to RM120.4 million. However this was partly due to a change in computing of its unearned premium reserves (UPR).

Significantly, the company achieved growth with an improved combined ratio, allowing AAGIB to finance its own development.

In 2012, AAGIB ran several campaigns to reinforce its brand identity. The Regional Credential and Regional Health Campaigns have been running since the year before with the former encouraged customers to ‘cross-over’ from other general insurance plans to AXA AFFIN’s policies, while the AFFIN’s policies, 


while the health campaign focused on ensuring Malaysians are able to pay for medical treatment to enjoy better quality life.

Riding on the recognition as The Most Preferred Brand for General Insurance at the BrandLaureate SMEs BestBrands Award 2011, there was enhanced emphasis on the SME segment in 2012, which saw AAGIB establishing a dedicated SME unit and launch launch several initiatives targeting small and medium enterprises. This was accompanied by the introduction of products catering to specific SME sectors – namely the Business Advantage Plus for Food & Beverage operators, Business Advantage Plus for Budget Hotel and for Learning Centres.

Towards improving its reach, AAGIB boosted its agency force by recruiting 340 new agents, bringing the total number to 2,808. The company is also working on expanding its
bancassurance capabilities by building better relationships with target banks. At the same time, it is providing its customers with greater convenience by extending its online capabilities. As of 2012, customers can buy their travel and  motor insurance, as well as check


their claim status, online. These efforts contributing in achieving a higher level of customer satisfaction as measured by higher customer retention of 68.5% in 2012.

Internally, AAGIB also invested in greater employee engagement, which led to a higher employee engagement score of 79%, a marked improvement over 73%  in 2011.


An immediate concern for financial institutions in Malaysia is on-going globalisation and liberalisation of the financial markets, as outlined in the Financial Sector Masterplan. This will see the entry of new and potentially bigger banks, brokerages and insurance companies. To face the ensuing competition, AHB plans to leverage on our strengths as an integrated financial services provider to offer cross-selling opportunities and other synergies to all our subsidiaries. We also plan to expand regionally, as we believe there are longterm prospects within Asia in which we can participate.



Another challenge is the thinning of net interest margins, which we are managing by placing greater emphasis on fee-based income. ABB has been increasing its feebased income and this will remain one of its main KPIs in the coming years. ABB will also focus on industries with high growth potential which have been targeted by the Economic Transformation Programme (ETP) while further tapping into the retail and SME segments. Prospects for the Islamic banking sector remain positive, as we believe heightened competition will catalyse further growth and innovation in products and customer service, thus strengthen the Islamic finance ecosystem.

Mindful of continued global uncertainties, AIBB remains optimistic of sustained capital market activity in Malaysia driven by consumption and private sector investment. These will provide the Bank with ample opportunities in fund raising, corporate finance advisory and stock broking. AFMB, meanwhile, is confident of being able to enhance its market position by focusing on its core activities in asset management and product development, while exploring opportunities for regional expansion together with the Group


AMBSB is preparing for greater competition in the capital markets by establishing strategic links with international moneybroking companies, thus enhancing its own technology and expertise.

In the insurance sector, AALIB is committed to growing new business by further investing in its distribution channels and providing quality products and services to meet the expectations of customers, while AAGIB will maintain its growth momentum in the market segments and distribution channels where it is strong, and accelerate its development in fast-growing markets while providing quality service.



"We plan to leverage on our strengths as an integrated financial services provider to offer cross-selling opportunities and other synergies to all our subsidiaries. We also plan to expand regionally, as we believe there are long-term prospects within Asia in which we can participate."


We have been through another challenging year, yet have emerged unscathed, thanks to the support of our various stakeholders. They include, first and foremost, our clients and business partners who have continued to inspire us to keep innovating and improving, as well as our highly valued shareholders – including Lembaga Tabung Angkatan Tentera, Boustead Holdings Berhad and The Bank of East Asia, Limited – whose faith in us has not wavered over the years. On behalf of the Board of Directors, thank you.

I would also like to acknowledge the steady support of the government and especially the Ministry of Finance and Ministry of Defence, as well as the regulatory bodies – Bank Negara Malaysia, Bursa Malaysia and the Securities Commission – for maintaining a fair and healthy financial environment in the country.


Our Board of Directors, as well as the Boards of our subsidiaries, also deserves special mention for guiding the Group, and ensuring the highest standards of governance are maintained at all times as we manoeuvred through the highs and lows of the year. I would also like to express my gratitude to the Managements of AHB and our subsidiaries as well as all our employees, for their dedication, hard work and commitment to the AHB Group of companies. With the same level of commitment and sense of purpose, we can only grow in strength to carve a brighter future for the Group and all our stakeholders.