financial group berhadmarine takaful bhd incorporated october 2007 hlib proposed to acquire the...

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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

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

to be an integrated financial services group that consistently meets our customers’ needs

VISION

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

CORPORATE

05ANNUALREPORT

2018


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%

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


08ANNUALREPORT2018

SImPLIfIEd gROUP STATEmENTS OfFINaNcIaL poSItIoN

CORPORATE

09ANNUALREPORT

2018

gROUP QUARTERLyFINaNcIaL perForMaNce

2018rM’Million Q1 Q2 Q3 Q4 year


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


Shareprice(RM) 16.6 17.9 19.3 18.0 18.0



Dividendpershare(sen) – 13.0 – 27.0 40.0

2017rM’Million Q1 Q2 Q3 Q4 year


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


Shareprice(RM) 15.4 14.2 15.9 16.8 16.8



Dividendpershare(sen) – 13.0 – 25.0 38.0

10ANNUALREPORT2018


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

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

12ANNUALREPORT2018


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

CORPORATE

13ANNUALREPORT

2018

14ANNUALREPORT2018


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

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

16ANNUALREPORT2018


AWARdS &accoLaDeS

2

45

10

7

3

8

9

1

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

6

CORPORATE

17ANNUALREPORT

2018

AWARdS &accoLaDeS

1112

13 14

15

16

17

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

18ANNUALREPORT2018


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

21

24

27

25 26

28

AWARdS &accoLaDeS

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

29

30

32 33

34 35

AWARdS &accoLaDeS

31

20ANNUALREPORT2018


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%

CORPORATE

21ANNUALREPORT

2018


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.”

22ANNUALREPORT2018


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.”


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.”


24ANNUALREPORT2018


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.”


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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


26ANNUALREPORT2018


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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27ANNUALREPORT

2018


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.

28ANNUALREPORT2018


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

30ANNUALREPORT2018


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%



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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.



32ANNUALREPORT2018


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


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.


34ANNUALREPORT2018


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.


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


36ANNUALREPORT2018


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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37ANNUALREPORT

2018


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

38ANNUALREPORT2018


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”).


40ANNUALREPORT2018



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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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.


£ 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.


£ 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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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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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


£ 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.


£ Training provided to employees on Anti MoneyLaunderingandCounterFinancingofTerrorism.

£ HLCB’sCodeofConductandEthicsprovidesguidanceonthepolicyonEntertainment&Giftstoaddressrisksrelatedtocorruption.


£ 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.


44ANNUALREPORT2018


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.



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.


£ 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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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.


£ 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.


£ 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.


£ To promote energy conservation and efficiency, ourstaffareencouragedtoconserveelectricitywhereverpossible.


46ANNUALREPORT2018


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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47ANNUALREPORT

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coNteNt INDex (coNtINueD)

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


48ANNUALREPORT2018

hoNG LeoNG FINaNcIaL Group berhaD

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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

50ANNUALREPORT2018


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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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.

52ANNUALREPORT2018


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

financial group berhadmarine takaful bhd incorporated october 2007 hlib proposed to acquire the...

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