Bank Islam Integrated Annual Report 2022

WHO WE ARE In 2022, global economies continued to face entrenched inflationary pressures, with demand-pull factors now outpacing receding cost-push factors from post-pandemic supply chain disruptions as well as the Ukraine-Russia conflict. Led by the US Federal Reserve, global central banks maintained their hawkish stance in their respective monetary policies to combat surging inflation. Global post-pandemic economic recovery has also stalled due to broadly worsening economic conditions. Amid slowing growth momentum, the Fed’s rapid rate tightening led to curve inversion and dampened risk sentiments. The Fed hiked the Fed Rates by 75bps in June 2022, the largest increase since 1994, and indicated continued aggressive hikes into 2023. BNM adopted a steadier approach to monetary policy tightening to remain supportive of domestic economic recovery. The Overnight Policy Rate (OPR) was raised 100bps from 1.75% to 2.75% throughout 2022, almost in sync with the rest of other ASEAN central banks, who were also less aggressive than the Fed in combating inflation. The Dollar Index (DXY) appreciated over 12% from about 93 to 105 levels in 2022. The Ringgit weakened against the US Dollar by 5.4%, peaking above the 4.70 level in October, but performed better against other major currencies such as the Euro, Japanese Yen, and Pound Sterling. The formation of a new Malaysian government during the last quarter of the year stabilised the Ringgit to about 4.4 to the USD. The Ringgit ended the year stronger than most Asian currencies except for the Thai Baht, Hong Kong Dollar, and Singapore Dollar. Despite the uncertainties surrounding the impact of concerted rate tightening and worsening global economic conditions on the Malaysian economy, the Bank’s FX sales volume continued to grow in 2022 amidst intense competition and significant margin erosions. There was also steady and significant growth in total deposits for the Bank throughout 2022. However, intense competition caused wholesale funding costs, contributing to margin compressions for both Treasury investments and Financing assets. The Bank’s liquidity metrics, nevertheless, improved further in 2022. The short-term Islamic interbank rates were capped within a steady range, with overnight rates trading between 1.68% to 2.75%, one week between 1.76% to 2.84% and one month between 1.85% to 3.25%. Fixed income investments and trading activities in 2022 were generally conservative as the team adopted a passive stance in the first half of 2022 and only started investing in the second half. Both fund-based and non-fund-based income was adversely affected as the team took cautious and prudent steps in rebalancing and reinvestment activities throughout the year while mitigating the revaluation impact on the portfolios’ mark-to-market positions. Meanwhile, Sukuk distribution activities continued to record commendable performance despite a steepening in the Ringgit yield curve and tepid secondary trading liquidity conditions. The Bank was appointed Lead Manager/Joint Lead Manager for 12 ESG-rated Sukuk distribution deals and continued to perform an active role as Islamic Principal Dealer (iPD). The fixed-income team achieved a Top 5 ranking in Bloomberg's Malaysian Ringgit Islamic Sukuk League Table for 2022. The team also received accolades for the best SRI Sukuk – Pengurusan Air Selangor RM430 million SRI Murabaha Sukuk, and the Best New Sukuk – Bank Simpanan Nasional RM750 million triple-tranche Wakala Sukuk. Integrated Report 2022 96 BUSINESS REVIEW Treasury and Markets

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