Affin Bank Berhad | Annual Report 2020

GROWTH IN ADVERSITY Over the last 12 months, the Bank has put in place key initiatives and actions as part of our AIM22 Transformation Program, Under AIM22, our key levers on value creations are: 1) Improving Net Interest Margin ("NIM") Via Reducing Cost Of Funds. 2) Increasing Fee-Based Income. 3) Growing CASA & Managing Cost. 4) Expanding Our Digital Capabilities. 5) Creating A Team High Performance Culture Where We Exceed Our Limits. This will entail a transformational change of mindset across the Bank, as we focus on our operational and service weaknesses and capitalise on the strength of our branch network and offer personalised services. As we evolve into a modern progressive bank and accelerate our growth engine, I will report the progress of this program to our stakeholders on the journey. I am pleased to report some early successes of our transformation journey. Fundamental to the banks competitiveness, we have reduced our cost of funds from 3.71% in FY2018 to 2.89% in FY2020. Consequently, our NIM has expanded to 1.7% level in FY2020. We continue to make progress on CASA acquisitions to reduce our cost of funds further and improving our NIM. The impact of the COVID-19 pandemic on the Group’s FY2020 financial results was significant. The profit before tax (“PBT”) was lower by 43% at RM386.7 million, although the Group recorded an increase in revenue of 18.3% to RM2.3 billion, our earnings were impacted as a result of modification loss due to the support the country provided to borrowers for the 6 months moratorium period and pre-emptive COVID-19 provisioning due to the economic slowdown. I would like to highlight that despite the challenges, our cost to income ratio improved from 63.0% in FY2019 to 59.6% in FY2020 with an increasing number of new to bank customer acquisition. The Bank’s NIM expanded from 1.5% in FY2019 to 1.7% in FY2020. Net interest income increased by RM29.0 million, or 3.9% in FY2020, driven by improved NIM from falling cost of funds following an increase in CASA by 13.6% to RM11.1billion. As a result, our CASA ratio improved to 22.2% in FY2020 from 19.1% in FY2019. This is in line with our strategy to grow our CASA franchise while shifting away from expensive fixed deposits. We have intensified our efforts to increase our Loan Loss Coverage to 50%, as the provisions in FY2020 increased ten-fold to RM561.6 million. The Bank has pre- emptively set aside additional overlay provisions of RM120 million given the COVID-19 pandemic environment, to fortify our provisioning buffers. For FY2021, we plan to increase our Loan Loss Coverage to 70%. As we strengthen our financial buffers which are currently lagging compared to our peers, we will see value return in the form of our share price. The Group places great emphasis in ensuring its capital position meets regulatory requirements and is able to withstand stressed economic and market conditions. The Common Equity Tier 1 capital ratios, Tier 1 capital ratios and Total capital ratios of all the banking entities in the Group are well above regulatory requirements, a testament to the Group’s financial strength and ability to withstand 16 MESSAGE FROM THE PRESIDENT AND GROUP CHIEF EXECUTIVE OFFICER ORGANISATION EXECUTIVE SUMMARY CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION I write this message to you to share with shareholders the impact of the COVID-19 pandemic and our strategies to build AFFIN Banking Group into an institution that offers unrivalled customer service. This evolution has begun. I came on board as the President and Group Chief Executive Officer of AFFIN BANK (“the Group” or “the Bank”) at the height of the crisis, and through the sheer determination and support of all our employees, customers and all stakeholders, we continue to weather the storm. Eventually, after all of this we want to emerge stronger and become more resilient as an organisation and a Banking Group. Every cloud has a silver lining, and ours has been the strength of our employees and their ability to adapt. 3.71 % 3.82 % 2.89 % IMPROVING COST OF FUNDS 2018 2019 2020 845.4 743.1 772.1 GROWING NET INTEREST INCOME (RM MI LL ION) 2018 2019 2020 (RM’billion) CASA 11.1 bil 4Q2020 11.1 4Q2019 9.8 1Q2020 9.1 2Q2020 9.6 3Q2020 10.2