COV E R R AT I O N A L E As the first full-fledged pure-play Islamic financial institution in the country, Bank Islam Malaysia Berhad (“BIMB”) is committed to advancing prosperity and progress for all our customers. Despite the unprecedented challenges presented by COVID-19, BIMB demonstrated its leadership by mobilising resources, leveraging on digitalisation to ensure business continuity, as well as reaching out to provide solutions to help those most impacted. From enhancing access to our services, providing f inancial help to SMEs as well as restructuring f inancings, we helped to alleviate f inancial diff iculties and ensured livelihoods were preserved. BIMB is also embarking on a f ive-year strategy roadmap, LEAP25 to deliver the promise of technology, redef ine growth by fortifying our f ive business drivers: Social Finance, Wealth Management , Enterprises and Wholesale Banking, and Digital Bank. This will enable us to achieve organic growth as well as provide leadership in digital banking and social f inance. Moving forward, BIMB will continue to focus on integrating the principles of Shariah, Value-based Intermediation (“VBI”) and ESG considerations to remain resilient in its pursuits. The cover design highlights BIMB’s reach – advancing prosperity to customers across all walks of life and economic segments. It also reflects BIMB’s foray into digitalisation of its products and services.
THE BANK THAT ADVANCES PROSPERITY FORALL As part of our efforts to create greater accessibility through technology, and in line with environmental efforts to go paperless, scan the QR Code with your smartphone to view this integrated annual report online. D E A R S H A R E HO L D E R S , WE L COM E TO BAN K I S L AM MA L AYS I A B E R HAD ’ S 2 0 2 1 I NT E G R AT E D R E PO R T INTEGRATED ANNUAL REPORT 202 1
ABOUT THIS REPORT This report is supplemented by disclosures that can be accessed online via www.bankislam.com CORPORATE BOOK CON T E N T S • Provides a comprehensive overview of the Group’s performance for 2021 and the outlook for 2022 R E GU L AT I ON S COMP L I E D • Malaysian Financial Reporting Standard • Companies Act 2016 • Bursa Malaysia’s Sustainability Reporting Guide • FTSE4Good Bursa Malaysia • Global Reporting Initiative G4 • Malaysian Code on Corporate Governance (MCCG 2021) SCOPE AND BOUNDARY OF REPORTING This Integrated Annual Report (IAR) is produced and published annually and covers our financial and non-financial performance for the reporting period of 1 January 2021 to 31 December 2021 unless otherwise stated. The report provides a complete and balanced review of primary activities of the Group, namely our overall performance and the delivery of initiatives towards achieving our goals, providing material information relating to our strategy and business model, operating environment, material risks, stakeholder interests, performance, governance and prospects. The boundary of the report extends beyond financial reporting and includes non-financial performance, opportunities, risks and outcomes attributable to/or associated with our key stakeholders, which have a significant influence on our ability to create value. REPORTING FRAMEWORKS BIMB’s integrated reporting process, as well as the contents of this report are guided by the principles and requirements of the following: • International Integrated Reporting Framework (IIRF) • Malaysian Code on Corporate Governance (MCCG 2021) by Securities Commission Malaysia • Companies Act 2016 • Bank Negara Malaysia Corporate Governance Policy Our f inancial statements for the Financial Year Ended 31 December 2021 have been prepared in accordance with: • Malaysian Financial Reporting Standards (MFRS) • International Financial Reporting Standards (IFRS) • Companies Act 2016 • Bank Negara Malaysia Policy Documents and Guidelines • Islamic Financial Services Act 2013 Sustainable Prosperity SP Real Economy RE CustomerCentricity CC Values-based Culture VBC Community Empowerment CE Digitalisation D STRATEGIC PILLARS Manufactured Financial Intellectual Human Social and Relationship Natural CAPITALS MATERIAL MATTERS Responsible Finance Talent Enrichment Inclusive Growth Ethical Practice & Reporting Islamic Finance & Knowledge Sharing
H o w To N a v i g a t e O u r R e p o r t MATERIALITY AND MATERIAL MATTERS This report aims to disclose information about matters that substantively affect our ability to create value over the short, medium and long-term and to deliver on our core purpose. A thorough assessment on material issues to BIMB was conducted in 2019. Material issues were identified based on an evaluation of how we create value, the impact of the external operating context on the value creation, the material interests of our stakeholders and the principal risks facing the Group. The content of this report focuses on the issues, opportunities and challenges that are material to both our stakeholders and our business, which consequently impacts our performance. By applying the principle of materiality into our reporting disclosures, we present vital topics that influence the Group’s strategy in creating long-term value for our key stakeholders. COMBINED ASSURANCE The report development process is supported by our robust internal control and good governance practices. Assurance for this report is provided by our Board of Directors (Board), supported by external verif ication by PwC Malaysia, our auditors for financial information and providers of limited assurance on selected non-financial information. FORWARD-LOOKING STATEMENTS This IAR contains certain forward-looking statements relating to BIMB’s future performances and prospects. These statements and forecasts are based on current assumptions, judgements and involve uncertainties as circumstances may change. Various factors may cause actual results to differ materially from those expressed or implied by these forward-looking statements such as a number of emerging risks as well as other factors that could adversely impact our business and financial performance. As such, these forward-looking statements should not be construed as guarantees to BIMB’s future performance. APPROVAL BY THE BOARD BIMB’s Board acknowledges its responsibility in ensuring the integrity of this IAR, which in the Board’s opinion addresses material issues to the Group’s ability to create value and fairly presents BIMB’s performance for the year 2021. This Annual Report for the year ended 31 December 2021 was approved by the Board on 15 April 2022, and signed on its behalf by: Tan Sri Dr. Ismail Haji Bakar Chairman Investors Government & Regulators Employees Customers Local Communities STAKEHOLDERS KEY RISK Credit Risk Market Risk Liquidity Risk Operational Risk Climate Risk Information Technology (IT) Risk Shariah NonCompliance (SNC) Risk Regulatory/ Compliance Risk INTEGRATED ANNUAL REPORT 202 1
inside this report KEY MESSAGES 01 6 Message from the Chairman 12 Message from the Group Chief Executive Off icer OVERVIEW OF BANK ISLAM 02 22 Vision | Mission | TAAT Values 23 Who We Are 24 Our Presence 25 How We Are Structured: Group Corporate Structured 26 What We Do: Core Businesses 28 2021 Key Highlights 28 Financial Highlights 29 Business Highlights 30 Awards & Recognition 32 Our Competitive Advantage 34 Signif icant Events 2021 VALUE CREATION AT BANK ISLAM 03 36 Our Approach to Value Creation 38 Realising VBI 39 Harnessing Capitals 42 Our Value Creating Business Model 44 Stakeholder Engagement
MANAGEMENT DISCUSSION AND ANALYSIS 04 A. STRATEGIC REVIEW 46 Operating Environment & Key Market Trends 54 Material Matters 58 Key Risks and Opportunities 62 Strategic Roadmap: LEAP25 64 Strategic Performance Review B. PERFORMANCE REVIEW 72 Financial Review from the Group Chief Financial Off icer 76 5-Year Financial Summary 77 5-Year Financial Highlights 78 Financing by Contract 79 Financing by Segment 80 Simplif ied Statements of Financial Position 81 Statement of Value Added & Distribution 82 Quarterly Performance 83 Financial Calendar C. BUSINESS REVIEW 84 Consumer Banking 87 Deposits and Cash Management 90 Commercial Banking 93 SME Banking 96 Treasury and Markets 97 Corporate Banking 100 BIMB Investment Management 103 BIMB Securities SUSTAINABILITY 05 106 Sustainability Statement LEADERSHIP 06 134 Corporate Information 136 Board Composition 137 Board of Directors’ Prof ile 143 Shariah Supervisory Council’s Prof ile 146 Management Team’s Prof ile 155 Heads of Subsidiaries’ Prof ile 156 Regional Managers’ Prof ile 158 Organisation Structure ACCOUNTABILITY 07 160 Corporate Governance Overview Statement 186 Additional Compliance Information 187 Board Audit & Examination Committee Report 193 Statement on Risk Management and Internal Control 209 Statement on Directors’ Responsibility FINANCIAL STATEMENTS 08 211 Directors’ Report 218 Statement by Directors 219 Report of the Shariah Supervisory Council 225 Statutory Declaration 226 Independent Auditors’ Report 230 Statements of Financial Position 231 Statements of Prof it or Loss 232 Statements of Other Comprehensive Income 233 Consolidated Statement of Changes in Equity 237 Statements of Cash Flow 241 Notes to the Financial Statements 375 Pillar 3 Disclosure ADDITIONAL INFORMATION 09 435 Shareholdings’ Analysis 438 Properties Owned by BIMB Group 439 Directory 439 Directory of Main and Regional Off ices 446 Ar-Rahnu Branches 447 SME Hub 448 Bureau De Change 449 Vehicle Financing Sales Hub 450 Subsidiaries of BIMB Group ANNUAL GENERAL MEETING 10 451 Notice of the 39th Annual General Meeting 458 Statement Accompanying Notice of the 39th Annual General Meeting 459 Administrative Guide • Proxy Form INTEGRATED ANNUAL REPORT 202 1
Message from the Chairman 6 BANK I SLAM MALAYS IA BERHAD
IN 2021 , WE BECAME THE ONLY PUBL IC-L ISTED, FULL-FLEDGED ISLAMIC F INANCIAL INST I TUT ION IN MALAYSIA. TAN SRI DR. ISMAIL HAJI BAKAR Chairman AND SALAM SEJAHTERA IN THE NAME OF ALLAH MOST GRACIOUS AND MOST MERCI FUL . 7 Key Messages Overview Value Creation MD&A Sustainability Leadership Accountability Financial Additional Information INTEGRATED ANNUAL REPORT 202 1
MESSAGE FROM THE CHAIRMAN Dear Shareholders, On behalf of the Board of Directors, it gives me great pleasure to present to you Bank Islam Malaysia Berhad’s (BIMB) first Integrated Annual Report. This is my first statement for BIMB as a listed entity, since the completion of our restructuring exercise from our former parent company, BIMB Holdings Berhad (BHB). BIMB is now accorded full autonomy in undertaking and pursuing our corporate and business strategies, as Malaysia’s first full fledged pure-play Islamic financial institution on the Main Market of Bursa Malaysia. This is an exciting moment for BIMB as the listing provides an advantageous position for BIMB to capitalise on the growth in Islamic finance and the Islamic capital market, and reinforces our efforts to expand our customer base. With a market capitalisation of RM6.2 billion, we are well positioned to deliver our five-year business strategy roadmap, LEAP25, which would redefine our growth and enable us to work in new ways to create stakeholder value. 2021 was a year of renewed optimism, as well as uncertainties. What was expected to be a year of recovery has brought the world to a halt with new waves of COVID-19 variants weighing down on the crucial veins of the economy. From uneven economic recovery to unequal access to vaccines, from widening income inequalities to disruptions in education, the pandemic had a disproportionate impact on the vulnerable in 2021. Aligned with our vision as a Bank that Advances Prosperity for All, BIMB responded to the challenges faced by our customers and the community by going beyond financial performance, standing alongside each of them, offering them aid to ease their difficulties. COMMENDABLE FINANCIAL PERFORMANCE During the year under review, BIMB delivered a commendable performance on the back of higher fund based income and lower impairment losses. We recorded a Group Profit Before Zakat and Taxation (PBZT) of RM704.2 million, a decline of 3.3% mainly due to lower non-fund-based income and higher operating expenses. The Group has declared an interim dividend of 10.93 sen per share for the year. Our performance translates into an Earnings Per Share (EPS) of 21.87 sen and a Net Return on Equity (ROE) of 8.4% (after tax and zakat). Our sustained dividend payout is reflective of our unwavering efforts to withstand the year’s challenges, as we continue to leverage on our strong fundamentals to achieve significant milestones. ADVANCING PROSPERITY FOR ALL At BIMB, we are confident of our ability to create sustainable value for all our stakeholders. Central to this are our clear focus on meeting customers’ expectations, our strong market position and a full suite of Shariah-compliant product offerings. We have taken a considered approach in the development and delivery of products and services, taking into account societal needs, while ensuring the efficiency of our operations to continuously improve customer experience. We continue to enhance our offerings and services, in line with the evolving banking landscape. In 2021, we launched the DuitNow QR function on BIMB’s GO Mobile Banking App and GO Biz by Bank Islam, an app targeted at Small and Medium Enterprise (SME) and Micro, Small and Medium Enterprise (MSME) customers. Sharp shifts in consumer preference to transact online have prompted us to further accelerate our ongoing digitalisation initiatives. Our efforts were recognised when we were awarded the Most Helpful Bank during COVID-19 in Malaysia and fifth in Asia Pacific, by The Asian Banker in May 2021. We also ranked fourth out of 55 Malaysian brands on KPMG’s Customer Experience Excellence Survey 2021. DEFERMENT AND ASSISTED REPAYMENT SCHEMES PROVIDED ASSISTANCE TO OVER 154,000 CUSTOMERS INVOLVING RM23BILLION URUS PEMULIH Targeted Repayment Assistance Prihatin Flood Relief Programme BANK I SLAM MALAYS IA BERHAD 8
during the COVID-19 pandemic, when the use of digital platforms for banking transactions became a necessity. While we work to enhance our systems’ capability and stability, as well as making inroads into improving our customers’ access to our digital platforms, we have also taken measures to prevent unauthorised access to our customers’ personal information, ensuring they stay protected from unwarranted actions by undesirable parties. BIMB constantly reviews its security implementation to assess the vulnerabilities and control effectiveness, in addition to monitoring the latest developments in the information security threat landscape. We have made significant investments in updating our technology systems and platforms, and taken steps to establish the necessary policies, processes and procedures to enhance our general effectiveness in providing a truly secure banking experience for our customers. We also took the necessary steps to inculcate strong security awareness among our employees through frequent information security training programmes as an essential part of BIMB’s security effort. For BIMB to remain relevant and competitive in this digital age, we have been proactive in addressing the concerns of our customers and eliminating any threats that might compromise their interest. We continue to keep abreast of the latest local and global trends, as we seek to become a digitally-enabled bank, capable of providing innovative yet secure digital banking solutions, and superior customer experience. Throughout 2021, to facilitate recovery from the pandemic, BIMB also provide assistance to its affected customers through various deferment and assisted repayment schemes, such as PEMULIH, Targeted Repayment Assistance, URUS and our Prihatin Flood Relief Programme. Through these various deferment schemes and measures, BIMB supported over 154,000 customers, involving RM23 billion, to help them get back on their feet. BIMB also continued its focus on the socio-economic wellbeing of the country by sustaining income generation and the financial resilience of the B40 segment and asnaf-owned businesses facing the effects of the COVID-19 pandemic via our iTEKAD and BangKIT micro financing programmes. I am proud to highlight that we have exceeded our initial goal under LEAP25 helping 4,765 beneficiaries through our Islamic social finance initiatives within the first year. BIMB’s Sadaqa House has continued to make inroads among the public and its participating partners with more than RM3.3 million collected for the benefit of various causes and social projects. In 2021, we disbursed more than RM3.6 million in aid to 4,905 beneficiaries. To this end, we have played our role in helping Malaysians bounce back from a challenging climate, and we stand ready to do more in 2022 and beyond. KEEPING CUSTOMERS SAFE ONLINE BIMB’s continued focus on digitalisation and automation of its banking operational processes means that information security remains our priority. It gained particular urgency GREEN FINANCING OUTLOOK UNDER LEAP25 STRATEGY, WE AIM TO RAISE GREEN FINANCING TO 10 - 12% OF TOTAL PORTFOLIO BY 2025. INTEGRATED ANNUAL REPORT 202 1 Key Messages Overview Value Creation MD&A Sustainability Leadership Accountability Financial Additional Information 9
COMMITTING TO SUSTAINABILITY Building on our core strength as a pioneer in the Islamic banking and finance industry, we have been on a journey incorporating principles of Shariah, Value-based Intermediation (VBI) and ESG considerations in our products and service offerings. We are committed in the mobilisation of our six strategic objectives of Sustainable Prosperity, Values-based Culture, Community Empowerment, Customer Centricity, Real Economy and Digitalisation to position us in our next phase of growth and transformation. During the year, we took major steps to cement our leadership in the areas of Green Financing and Shariahcompliant ESG Investing, both identified as growth-drivers for our business. BIMB already has one of the highest exposures to Green Financing within the Malaysian banking industry, with Green Financing accounting for approximately 4% of our total financing, which is well above the 1-2% recorded by most Malaysian banks. We are working to further build on this strength under our LEAP25 strategy, to raise this to 10-12% of our current portfolio by 2025, establishing BIMB as a dominant player in Malaysia’s growth in Green Financing. We are also helping our customers to transition to greener lifestyles, by increasing financing to areas not within the conventional definition of Green Financing, ranging from the purchase of electric vehicles to financing for households and small businesses that are switching to solar power. Our approach to sustainability, Green Financing and ESG-compliant f inancing and investing is part of our comprehensive approach to growth, which recognises that embracing ESG is not just the right thing to do, but it is also good for business. ENHANCING CORPORATE GOVERNANCE BIMB is committed to upholding the highest standards of corporate governance, in line with the strong values that we hold as a company. During the year, we implemented several key policies and measures to not only align with regulatory requirements but also to meet the high expectations of our stakeholders. As part of Board’s commitment to effective stewardship, we undertook a comprehensive review of the Board Charter and the Terms of Reference of the Board and the Board Committees to ensure that they are up-to-date and in line with the latest recommendation of the Securities Commission’s Malaysian Code of Corporate Governance (MCCG). We welcome the 2021 update of the MCCG for companies to integrate sustainability considerations into their strategy, which is very much in line with our commitment to strengthen our sustainability governance, our corporate strategy and our determination to play a larger role as a responsible corporate citizen. We carried out a review of the Board succession-planning for the Group to ensure we meet the recommended best practices on the tenure of Independent Directors and the composition of Independent Directors. We also recently signed up as a Corporate Advocate of the Malaysian chapter of the 30% Club, a network of corporations that are working together to increase women’s participation in the boardroom. Our corporate advocacy in the Club will help us to leverage on best practices in implementing new diversity, equity, and inclusion (DEI) policies, in knowledge sharing and setting diversity targets, while contributing to the larger plan of promoting DEI in the Malaysian Islamic finance industry. PEOPLE AT THE CORE OF OUR TRANSFORMATION JOURNEY Our colleagues, from those in our head office to those at the frontlines of serving our customers and communities, remain our most valuable asset. BIMB’s Live Well programme which was introduced to promote our colleagues’ mental & BANK I SLAM MALAYS IA BERHAD 10 MESSAGE FROM THE CHAIRMAN
mobility efforts. All these are supported with continuous learning programmes of blended learning modules that go beyond the classroom. ACKNOWLEDGEMENTS At the end of a highly eventful year for BIMB, I would like to take this opportunity to express my deepest gratitude to BHB’s Board members and employees for their service and contribution over the years. They have played a vital role in maintaining BHB’s position as the premier and successful Islamic financial holding company in Malaysia, before handing over the torch to BIMB in October 2021. BHB’s investments and pioneering legacy have left an indelible mark in the Islamic financial industry, which has been the stepping-stone for BIMB to shape its future as a leading Islamic financial institution. My sincere appreciation to my colleagues on the Board and to BIMB’s senior leadership team. I speak for the entire Group that we are saddened by the loss of our beloved member of the Board, Puan Noraini Che Dan. Her contributions to BHB and BIMB were invaluable and integral to the successful listing of the Group. My gratitude also goes out to Encik Zahari @ Mohd Zin Idris who retired from the Board during the year, for his service and unwavering commitment. To all our stakeholders who have been an important part of our journey thus far, I thank you for your continued support and trust. And finally, my deepest appreciation goes to all our employees for the remarkable commitment they have shown to BIMB, living our TAAT values and setting us in a good position for our exciting journey ahead. Tan Sri Dr. Ismail Haji Bakar Chairman emotional wellness in 2020, was expanded to include physical, spiritual and financial wellness last year. The programme was established to assist employees in addressing their personal and work-related challenges that may adversely affect their job performance and personal well-being. By providing all 4,731 BIMB employees access to Naluri, a digital and customisable health solution, we have empowered our colleagues to manage their own mental and physical health in the most effective ways. BIMB has also offered support by providing employees the solutions, insights, tools, and access to relevant experts for them to seek professional help for their problems. The prolonged pandemic also presented us with an opportunity to embrace a hybrid workplace model that seamlessly combines remote and of fice work. We are committed to investing in technology to enable better efficiency and accessibility to services that will produce a more conducive working environment. HUMANE, our human capital management system introduced in 2021 has accommodated our evolving workforce needs. Being cloud based, it allows efficient access to data and information, streamlining our human capital management process, contributing to better talent recruitment, and improved learning and development experience for employees. The Group’s efforts to improve internal capabilities have been continuous. Our current focus on developing internal digital, leadership and professional certification aims to fill our people development gaps, helping to upskill and reskill them to keep abreast with the latest requirements of the finance industry. We accelerated digital literacy and adoption through an in-house Digital Upskilling Programme with the intention of nurturing our talent pool. With the establishment of our Digital Academy in 2021, we will continue to identify and build capabilities among our high potential talents, which will contribute to our succession planning and internal talent INTEGRATED ANNUAL REPORT 202 1 Key Messages Overview Value Creation MD&A Sustainability Leadership Accountability Financial Additional Information 11
BUI LDING ON OUR CORE STRENGTHS , BIMB AIMS TO BE A CHAMPION IN OFFERING SHARIAH ENVIRONMENTAL , SOCIAL AND GOVERNANCE (SHARIAH-ESG) TOTAL F INANCIAL SOLUT IONS MOHD MUAZZAM MOHAMED Group Chief Executive Officer Message from the GroupChief Executive Officer 12 BANK I SLAM MALAYS IA BERHAD
13 Key Messages Overview Value Creation MD&A Sustainability Leadership Accountability Financial Additional Information INTEGRATED ANNUAL REPORT 202 1
Dear Shareholders, Bank Islam Malaysia Berhad (“BIMB or “the Group”) continues to evolve as a business and 2021 was a pivotal year for us. In October, we became a public-listed company, giving the Malaysian public their first opportunity to invest in Malaysia’s only public-listed, full-fledged Islamic banking group. 2021 also marked the completion of the first year of our LEAP25 corporate strategy that sets-out our goals and pathway for delivering sustainable value for our shareholders as we navigate what is increasingly being called the Next Normal. OPERATING ENVIRONMENT Our transformation journey in 2021 continued against a chal lenging backdrop, as the Malaysian economy faced renewed headwinds f rom the resurgence of COVID-19 cases and the banking industry itself continuing to undergo a fundamental transformation. The year began with forecasts of robust economic growth at the domestic and international levels. Bank Negara Malaysia ( “BNM” ) projected that Malaysia’s GDP would grow by 6% - 7.5%, in 2021, a marked turnaround f rom the 5.6% contraction in 2020. The recovery was underpinned by rising vaccination rates, the easing of movement restrictions, the rebound in economic activity and the continued impact of the government’s stimulus spending. This favourable scenario was projected to support the performance of the Malaysian banking sector. However, the strong growth in the domestic economy was undermined by the emergence of the highly-infectious Delta and Omicron variants of COVID-19 in the second-half of the year. The resulting restrictions on movement and economic activity led to softer economic conditions. Despite these challenges, the Malaysian economy expanded by 3.1% for the year as a whole. The expansion was supported by BNM maintaining the interest rate at a record low of 1.75% throughout the year, with the low cost of funding supporting a rebound in consumption and business investment. However, the low-rate environment has also led to compressed interest rate margins across the banking industry, which has negatively impacted the banking sector’s profitability. Notwithstanding these challenges, the Malaysian banking industry showed remarkable resilience during the year. Financing growth in 2021 returned to pre-pandemic levels, rising by 4.1%, up from the 3% financing growth the year THE MALAYSIAN ECONOMY EXPANDED BY 3.1%; SUPPORTED BY BNM MAINTAINING THE INTEREST RATE AT A RECORD LOW OF 1.75% THROUGHOUT THE YEAR, WITH THE LOW COST OF FUNDING SUPPORTING A REBOUND IN CONSUMPTION AND BUSINESS INVESTMENT BANK I SLAM MALAYS IA BERHAD 14 MESSAGE FROM THE GROUP CHIEF EXECUTIVE OFFICER
before. At the same time, the ratio of non-performing financings in the Malaysian banking sector also declined to 1.4% in 2021, from the 1.6% recorded the year before. The improvement was driven by the household segment as banks continued to support viable borrowers facing temporary financial diff iculties by offering repayment assistance packages. BIMB continued to outperform the banking sector as a whole in both key areas. Our non-performing financing ratio for the year stood at 0.96%, even as our financing growth for the year rose by 6.4%. The strength of our performance in these areas reflects the effectiveness of the LEAP25 growth strategy that we have implemented. Alongside the unique chal lenges caused by the COVID-19 pandemic, we have seen the acceleration of larger trends that are reshaping the banking industry itself. The shift to digital banking, the disruption caused by the rise of FinTech firms and the growing pressure for financiers to incorporate ESG considerations into their lending practices are reshaping the banking landscape itself. STRATEGY AND TRANSFORMATION At the heart of our strategy is our commitment to our values and purpose as an Islamic banking institution. The strong ethical f ramework gives us a major asset as the world embraces values-based f inancing. Building on our core strengths, BIMB aims to be a champion in offering Shariah Environmental, Social and Governance (“Shariah-ESG”) total financial solutions and to establish its leadership in social finance and digital banking. Our roadmap for delivering these goals is laid-out in our LEAP25 corporate strategy plan, which was launched at the end of 2020. LEAP25 sets clear targets for the next f ive years, of growing our asset size to over RM100 billion, doubling our ESG-rated financing, sustaining superior industry Return-on-Equity, increasing our nonfund-based income contribution, creating a positive social impact and retaining high-performing talent. These targets are anchored by the six pillars of Sustainable Prosperity, Values-based Culture, Community Empowerment, Customer-Centricity, Real Economy and Digitalisation. To achieve this aim, we are configuring our business around delivering cuttingedge products, enhancing customers’ experience, accelerating our digital initiatives and deepening our strategic collaborations. As we navigated the chal lenging backdrop of 2021, we actively executed growth strategies that are aligned with our LEAP25 targets. During the year, we expanded our Green Financing portfolio, actively pursued the non-Muslim consumer market and accelerated digitalisation across all areas of our business and operations. The effective execution of our strategy had a visible impact on our business performance and we aim to pick up the pace of transformation going forward. While we have now entered a new phase of our growth strategy, our intention remains the same – to create sustainable value for our shareholders and delivering on our aim of being the Bank that Advances Prosperity for All. SIX PILLARS OF LEAP25 Sustainable Prosperity Values-based Culture Community Empowerment Digitalisation Customer- Centricity Real Economy INTEGRATED ANNUAL REPORT 202 1 Key Messages Overview Value Creation MD&A Sustainability Leadership Accountability Financial Additional Information 15
driven, mainly, by higher net fund-based income during the year. Our Consumer Banking business continued to build on its core strengths, with our market share rising from 4.7% to 4.8%. Growth in our Consumer Banking financing portfolio was driven, mainly, by the rise in home financing and this trend is set to continue. Malaysia has a young, favourable demographic that supports continued household formation, which will underpin demand for our Islamic home financing products. Our strategy for Consumer Banking recognises that we need to continue diversifying our offerings to keep delivering growth. Among the key strategies that we implemented in 2021 was to expand our targeting of the nonMuslim market segment and actively work to grow our Green Financing portfolio. Competition for these markets remains intense and we implemented key measures to drive growth, including OUR PERFORMANCE I am pleased to share with you that BIMB delivered a commendable set of operational and f inancial results, despite the challenging operating environment and growing digital disruption in the banking landscape. Total revenue for the year stood at RM3,167.8 mi l l ion. This marked a decline of 5.2% from 2020, reflecting the subdued economic environment and the continued impact of low interest rates. For 2021, we achieved a Profit Before Tax and Zakat (PBZT) of RM704.2 million, which was 3.3% lower than the previous year. The decrease in PBZT during the year was mainly due to lower non-fund-based income, which was attributable to lower net gain from the sale of investment securities, and higher operating expenses. The higher operating expenses were inevitable as we increased our investment in technological inf rastructure for our digitalisation agenda. This was offset by a lower modification loss arising from the financing moratorium granted to customers. SEGMENTAL PERFORMANCE The impact of our transformation strategy was visible across all areas of our business segments during the year, as we continue to focus on capturing new markets, delivering a truly engaging customer experience and leveraging on technology to drive growth. Our Consumer Banking business grew strongly, despite the challenging environment . Consumer Banking remains our biggest earner and we have continued to innovate in this area, driving its continued growth. Net income for the segment rose by 13.4% to RM1.2 billion in 2021. The rise was simplifying our financing process by implementing the Consumer Financing Process Review. We also intensif ied digital isation for lead generation via digital platforms to deliver more convenient and personalised services to customers. Our Consumer Banking saw minimal demand for assistance under the Financial Management and Resilience Programme (“URUS”) programme during the year. As massive floods hit the country in late November 2021, BIMB responded by launching its Prihatin Programme for Flood and Disaster Relief Facility (“DRF”) to assist flood-affected individuals and business f inancing customers in need of help. In line with our values, we will continue to offer financial support to customers in need, as parts of society continue to feel the strain from the impact of COVID-19. Our Corporate and Commercial Banking business delivered a strong performance as our customer-centric approach, strong commercial relationships and focus on growth sectors allowed us to capitalise on improvements in the national economy. Net income for the year rose by 6.5% to RM415.6 million. Throughout the year, Commercial Banking acted decisively to support our existing customers affected by the pandemic, including through assistance in instalment deferment, as well as by the rescheduling and restructuring of facilities. These measures were in line with the f inancial assistance programmes introduced by the Government to support the national economy. The performance of our Commercial business was negatively impacted by the overhang in the property market in 2021. However, we continued to develop new opportunities in property f inancing by targeting growing sectors, such as affordable housing. We also expanded our Green SEGMENTAL NET INCOME CONSUMER BANKING: RM1.2 billion CORPORATE & COMMERCIAL RM415.6 million TREASURY RM241.4 million BANK I SLAM MALAYS IA BERHAD 16 MESSAGE FROM THE GROUP CHIEF EXECUTIVE OFFICER
Financing initiatives beyond renewable energy and towards the wider green technology and green economy ecosystem. These will remain key growth areas for our Corporate and Commercial Banking business as we move forward. Commercial Banking will continue to build on our existing strengths while executing strategies to capture market share in selected high-value and highgrowth target segments. Our Treasury business registered net income of RM241.4 million for the period. The f igure was 47.1% lower than the previous year, reflecting the impact of the challenging economic environment. The decline in Treasury’s net income for 2021 was attributable to lower net gain f rom the sale of investment securities. Going forward, Treasury will maintain a cautious approach to trading activities and remain prudent in its investment portfolio management and rebalancing activities. Our focus will be on growing fund-based income potential and implementing strategies to enhance yield pick-up. ACCELERATING DIGITAL TRANSFORMATION Digitalisation is one of the six pillars supporting our LEAP25 growth strategy and we are focused on enhancing our digital offerings, so that we are not just on par with our peers and competitors but emerge as a clear leader in digital banking. Central to our digital strategy is the effective leveraging of the vast amounts of data that we generate, in order to deliver a seamless and hyperpersonalised customer experience across all our channels. The banking landscape is evolving rapidly with the growth of online banking, e-payment systems and the rise of the FinTech companies, as consumers embrace online banking and e-commerce. The shift towards online transactions has been greatly accelerated by the pandemic and is forcing businesses to develop new strategies that adapt to and anticipate the changes, and BIMB has taken decisive action to capitalise on this opportunity. This shift in consumer preference and the enhancements that we have already made to our digital offerings have driven rapid growth in our digital operations, with more than 90% of our transactions now conducted through electronic channels. The number of customers using our internet banking rose by 22% during the year, to 1.5 million, while the number of internet banking transactions grew even faster, rising by 50%. GO by Bank Islam NUMBER OF ACTIVE USERS 849,000 79% TOTAL NUMBER OF FINANCIAL TRANSACTIONS 47 million INTEGRATED ANNUAL REPORT 202 1 Key Messages Overview Value Creation MD&A Sustainability Leadership Accountability Financial Additional Information 17
Our digital growth strategy goes far beyond collaborations and enhancements. In 2020, we established the Centre of Digital Experience, or CDX, to drive innovation by experimenting with new business models and technology, and to assess the feasibility of their adoption by BIMB. CDX has embraced the opportunities for disruptive innovation that have arisen during the pandemic. We recognise that the shift to new technologies carries execution and security risks and we have acted to minimise these risks by ring-fencing CDX from the rest of BIMB. We have also continued to leverage on digitalisation to drive operational efficiency across our company through increased process automation. A key initiative during the year was the accelerated implementation of Robotics Process Automation, which has allowed our staff to automate business processes on their own, cutting down on the number of work hours spent on routine tasks. The growth in our mobile banking services has been even more impressive. Our multiple award-winning GO by Bank Islam mobile banking app saw massive growth as we continued to rollout new features. The number of active users on GO by Bank Islam increased by 79% in 2021, to reach 849,000. At the same time, the total number of transactions on GO by Bank Islam tripled to reach 47 million, far exceeding our target of 21 million transactions for the year. As we move forward, we will continue to build on this momentum by accelerating the roll-out of new features on GO by Bank Islam. We further extended our mobi le banking offerings with the launch of the GO Biz by Bank Islam mobile app in July, which is targeted at SMEs and micro businesses. The app allows small merchants to manage their day-to-day business quickly and securely f rom their mobile devices. The app has been well-received and we on-boarded more than 7,000 merchants by the end of the year. Even as we have grown our digital banking services, we have seen the traditional banking and financial model face serious disruption from the rise of the FinTech start-ups. The FinTech’s have rapidly leveraged on thei r greater agility and an accommodating regulatory landscape to drive innovation in the industry. At BIMB, we see this as an opportunity and we have actively embraced collaboration with selected FinTech’s in order to sharpen our own digital delivery. We aim to amplify the impact of these collaborations by leveraging on our unique advantages, credibility, large customer base, access to huge amounts of data and financial resources. Above all, we aim to enhance the impact of these collaborations by leveraging on the unique branding and position that we hold as Malaysia’s leading Islamic bank. BANK I SLAM MALAYS IA BERHAD 18 MESSAGE FROM THE GROUP CHIEF EXECUTIVE OFFICER
LOOKING AFTER OUR PEOPLE AND THEIR DEVELOPMENT Our ability to effectively execute our growth and transformation strategy is dependent on having the right people in our workforce. To deliver on this, we have aligned our overall workforce strategy with the aspirations of the Group’s LEAP25 strategic plan. For BIMB to progress and remain relevant in the face of the ever-challenging env i ronmen t and i nc rea s i ng l y competitive marketplace, developing our peoples’ capabilities, as well as creating the appropriate culture and values are of utmost importance. Digitalisation is at the heart of our corporate transformation and to ensure that our people are armed with the right skills to continue contributing to the continued growth of the bank, we have stepped-up investment in digital training. In 2021 we established our inhouse Digital Academy and expanded our Digital Upskilling Programme, which offers training and certification, as we work to build a workforce that is both customer-focused and digitally-savvy. Digitalisation is also the key in us being able to better serve our employees. The implementation of HUMANE is specifically geared towards fulfilling our human capital needs via a cloud-based self-service digital platform. With a userf riendly interface, the platform gives our employees the ability to manage their training progression as well as access career-related details such as payroll information, benefits and leave entitlements. Competition for top talent remains fierce, and BIMB continues to refine our recruitment and reward structures to ensure that we are able to attract and keep the right people. To that end, we continue to work hard on positioning BIMB as an employer of choice and our success in this area is seen in the consistently high rankings that BIMB receives in graduate employment surveys. EMBEDDING SUSTAINABILITY INTO OUR BUSINESS Our commitment to sustainability is deeply embedded in our business model as an Islamic bank and value-based intermediary. Islamic finance and ESG investing offer complementary capital-raising and investment approaches with many shared principles, such as being a good steward to society and the environment. This strong confluence of principles allows us to use a market-based approach to supporting our sustainability goals. As a key part of delivering this goal, BIMB is working to integrate a comprehensive ESG framework into our credit assessment process, which we aim to implement in 2022. One of the key drivers for our business growth and achieving our sustainability goals is our focus on growing our Green Financing portfolio, which stood at more than RM2 billion at the end of 2021. Much of this financing has been directed to the Renewable Energy Green Building sector, thus far. As we move forward, we are now actively aiming to expand our presence in the wider green economy ecosystem, with a focus on mini-hydro and solar farm projects. INTEGRATED ANNUAL REPORT 202 1 Key Messages Overview Value Creation MD&A Sustainability Leadership Accountability Financial Additional Information 19
BNM forecasts the Malaysian economy to grow at 5.5% - 6.5% in 2022. The growth of the economy will be supported by the pump-priming impact of Budget 2022. The total budget of RM332.1 billion, which includes targeted spending programmes, will have a strong multiplier effect across key sectors of the economy. Additionally, the further reopening of international borders will also boost Malaysia’s vital tourism industry, with strong positive spillover effects on other key sectors of the economy. In addition, the launch of the government’s 12th Malaysian Plan will further catalyse growth over the period 2021 to 2025. The plan emphasises growth in high impact projects in infrastructure, technology, and efforts towards greening the economy. Under the Plan, the contribution of renewable energy within the national energy mix is set to increase, which will support our push to expand our Green Financing portfolio. The national economy will also continue to benefit f rom the prevailing low interest rate environment. Many analysts expect BNM to maintain its Overnight Policy Rate (“OPR”) at the current record low of 1.75% throughout the first-half of 2022, and see the growing possibility of a rate-hike in the second half of the year, in line with the global trend towards monetary tightening. A key concern of Islamic finance is to eliminate poverty and serve human welfare, which aligns strongly with the objectives of the UN’s Sustainable Development Goals (“UNSDG”). We took a landmark step in this direction during the year, when BIMB Investment launched Malaysia’s first Waqf Featured Unit Trust Fund in March 2021. The Fund is an inclusive economic instrument based on philanthropic principles that aims to provide underserved members of society with access to qual i ty essent ial services and is recognised as a Qualified Sustainable and Responsible Investment (“SRI”) Fund under the Securities Commission (SC) Guidelines on Sustainable and Responsible Investment Funds. With its launch, BIMB Investment became the first fund management company to structure and design a waqf unit trust fund following the introduction of the Waqf-Featured Fund Framework by the SC in November 2020. As we move forward, we will continue to innovate in the area of social finance, not just because it makes good business sense, but also because it is an essential part of our identity as an Islamic banking and financial group. Alongside integrating ESG considerations into our business, we are also working to reduce the negative environmental impact of our operations. We have launched a green branch initiative that will see the introduction of solar panels, rainwater harvesting, energy efficient lighting systems and auto sensors at selected BIMB branches. The concept will be trialled at our Temerloh branch. OUTLOOK BIMB anticipates a stronger performance in the year ahead, supported by a rebound in the Malaysian economy and higher growth in our targeted financing areas and we have actively positioned ourselves to capitalise on the continuing recovery. BANK I SLAM MALAYS IA BERHAD 20 MESSAGE FROM THE GROUP CHIEF EXECUTIVE OFFICER
Malaysia’s economic rebound will also be supported by continued global growth, with the International Monetary Fund (IMF) projecting that world economy will grow by 4.4% in 2022. Key domestic industries, such as manufacturing and services, are set to benefit f rom the global economic recovery as Malaysia is highly integrated into global supply chains. Questions about the strength of the global recovery persist, though. The ongoing disruption in global supply chains, rising inflation and energy prices, and growing geopolitical tensions centred on Eastern Europe all add elements of uncertainty to the global growth projections. Notwithstanding these risks, 2022 looks set to be a year of continued recovery. The projected rebound, however, will not mean a return to the status-quoante and BIMB is actively positioning itself to capitalise on key trends that will define the next normal. Sustainabi l ity considerations wi l l continue to move to the centre of business and f inance, with the SC integrating them into their latest updates to the Malaysian Code of Corporate Governance and BNM placing the transition to a greener economy at the heart of its new five-year Financial Services Blueprint 2022 – 2026. We welcome these initiatives as they play to our strengths and are aligned with our own business strategy. Competition in the area of Green Financing will intensify as banks increase the target size of their green portfolios. However, we believe that our strong track record in Green Financing, deep network of relationships in the Malaysian corporate world and our established position as a values-based lender gives us a competitive edge in this area. One of the most lasting impacts of the COVID-19 pandemic has been the growth of digitalisation. The digital economy accounted for 22.6% of Malaysia’s GDP by the end of 2021, but is projected to grow to 25.5% of GDP by 2025, driven by a rise in e-commerce and digital finance. To capitalise on this opportunity we will continue to invest in ensuring that we have the right people, the right technology and the right strategy to deliver the customised solutions that digital customers demand. In conclusion, as we move forward, BIMB is focused on our goal of being The Bank that Advances Prosperity for All. To deliver on this, we will continue to accelerate the transformation of our company in line with our LEAP25 strategy by putting customer-centricity at the heart of our business, widening our offerings and embedding digitalisation into all areas of our business and operations. This is how we will unlock new growth opportunities and this is how we will continue building sustainable value for our stakeholders. ACKNOWLEDGEMENTS Firstly, I wish to thank our customers for the support that they have shown us as we continue our transformation journey. I would also like to express my appreciation to our shareholders, who have placed their trust in us. We will continue working to be worthy of their confidence. I wish to express my particular gratitude to our Chairman and Board of Directors for their effective stewardship of our company as we navigated the challenges of the last year. I also wish to thank my colleagues in the BIMB leadership team for the excellent job that they have done. I look forward to continuing to work with you in the year ahead. Finally, I wish to express my gratitude to all members of our extraordinary workforce. It is your dedication that drives our success. MOHD MUAZZAM MOHAMED Group Chief Executive Officer INTEGRATED ANNUAL REPORT 202 1 Key Messages Overview Value Creation MD&A Sustainability Leadership Accountability Financial Additional Information 21
TAAT Values Think Customer Act with Integrity Advance Beyond Take Charge • • We ensure customer value is central to all the decisions we make • • We serve our customers with integrity, care and consideration • • We aim to exceed our customers’ expectations • • We adhere to our religious, moral and ethical principles • • We strive to do what is right at all times in accordance with laws and regulations • • We treat each other with respect and honesty • • We strive to constantly improve and innovate all parts of our business • • We respond and adapt quickly to possibilities • • We embrace curiosity, learning and new ideas • • We are self-driven and will always step up to overcome any challenges • • We work as one and make things happen together • • We act responsibly and with courage VISION THE BANK THAT ADVANCES PROSPERITY FOR ALL MISSION TO PROVIDE SOLUTIONS THAT DELIVER VALUE ASSURING TRUST DELIVERING VALUE OUR BRAND PROMISE 22 BANK I SLAM MALAYS IA BERHAD
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