BIMB’s ability to continue creating value for our stakeholders is strongly tied to our ability to navigate the fast-evolving operating environment. Our external operating context has a direct impact on our profitability, the risks that we face and our strategic decision-making. TRENDS DESCRIPTION IMPACT The Malaysian economy returned to growth in 2021, despite the ongoing challenges arising from the pandemic. The recovery came with a high degree of uncertainty, though, as the government imposed various measures throughout the year to halt a resurgence in the number of COVID-19 cases. The government’s reimposition of a total lockdown in the middle of the year hit economic growth, undermining BNM’s original forecast of a 6% to 7.5% expansion in GDP for the year. The gradual lifting of movement restrictions and the resumption of most economic activity, as well as the acceleration of the National COVID-19 Immunisation Programme, continued government stimulus and the spillover effect of the global economic recovery, supported a pick-up in growth, and the country saw a GDP expansion of 3.1% for the year. • The subdued economic growth in 2021 and weak consumer sentiment in the first half of the year resulted in a less-supportive environment for the banking industry than had originally been forecast. • The shifting economic outlook throughout the year had a strong impact on consumer sentiment and behaviour. The Consumer Sentiment Index (CSI) remained below the 100-point threshold level, which indicates optimism, throughout the first half of the year, as consumers remained cautious due to the continued impact of COVID-19. The CSI fell to a low of 64.3 points in the second quarter of the year, following the reimpositon of the Movement Control Order (MCO) in May. The gradual reopening of the economy led to a rebound in consumer conf idence in the second half of the year, with the CSI rising to 101.7 in the third quarter of 2021. This marked the first time the index had risen above the 100-point optimism threshold since the third quarter of 2018. In direct response to the pandemic, BNM progressively reduced the interest rate to a record low of 1.75% in 2020 and maintained it at that level all through 2021. The record low rate supported a rebound in consumption and business investment but also led to compressed interest rate margins across the banking industry, which has negatively impacted the banking sector’s profitability. BNM’s sharp rate cuts and decision to maintain low interest rates is in line with the actions of central banks around the world. The low rate environment has supported a global economic recovery but has also led to growing inflationary pressure in the international financial system. • Low interest rates led to margin compression, which has impacted top line performance throughout the banking sector. • Conversely, the low cost of funding encouraged bus inesses and consumers to seek new loans. Financing growth in Malaysia rose to 4.1% in 2021, similar to the prepandemic figure in 2019. • Inflationary pressure rose in 2021 and became more prominent in the second half of the year due to a combination of easy-money policies, rebounding consumer demand and growing production and logistics bottlenecks. 4 3 2 1 -1 -2 -3 -4 -5 0 ‘16 6 4.4 5.8 48 4.4 -5.6 3.1 5 -6 ‘17 ‘18 ‘19 ‘20 ‘21 Trend 1 MODERATE ECONOMIC RECOVERY Trend 2 INTEREST RATES AND OTHER FINANCIAL CONSEQUENCES GDP Growth (%) BANK I SLAM MALAYS IA BERHAD 46 OPERATING ENVIRONMENT & KEY MARKET TRENDS
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