Over our 40-year history, we have proven our resilience by overcoming various economic and financial crises to become a bank that is practically synonymous with Malaysia. AZIZAN ABD AZIZ Group Chief Financial Officer The financial year 2023 was a period marked by significant challenges, notably characterised by a competitive price war for deposits and the anticipatory impacts of a potential Overnight Policy Rate (OPR) hike. These factors influenced customer behaviour and intensified the competitive landscape for deposits throughout the year, particularly from the first to the third quarter. As a consequence, we observed an increase in our cost of funding and experienced pressure on our Net Income Margin (NIM). Despite these external pressures, Bank Islam demonstrated resilience. By year-end, we achieved a NIM of 2.1%, reflecting a decrease of 16 basis points from 2.3% in 2022. While the banking sector at large grappled with similar issues, our Bank’s relative containment of NIM decline is indicative of our diligent financial management and strategic positioning. Additionally, we addressed the ongoing post-pandemic challenges affecting diverse customer segments by maintaining flexible rescheduling and restructuring options, underscoring the emphasis we place on our customers’ financial well-being. Our approach is grounded in the belief that the Bank’s sustainability is interlinked with that of our customers, reinforcing our focus on their financial health alongside our operational goals. STRONG & RESILIENT GROWTH Against the challenging backdrop, we reported a net profit of RM553.1 million, an improvement of 12.5% from the previous year. This growth is reflected in our enhanced earnings per share (EPS) and net Return on Equity (ROE), which stood at 24.57 sen and 7.8%, respectively. The Group’s net income rose 7.2% to RM2.5 billion, up from RM2.3 billion the previous year. This increase was significantly propelled by a 75.9% surge in non-fund-based income, amounting to an additional RM175.5 million. Key contributors to this rise included elevated gains from foreign exchange transactions and an uptick in investment income. However, this positive trajectory was somewhat moderated by a slight 0.4% decline in net fund-based income, which decreased by RM8.3 million. The principal factor here was a reduction in our NIM, which declined by 16 basis points to 2.1% for FY2023, primarily due to the escalated cost of funds, despite an increase in financing. Furthermore, a rise in overhead costs and an expanded net allowance for impairment on financing and advances somewhat tempered our net income gains. Notably, our total capital ratio remained robust, standing at 19.9%. This solid capital foundation enables us to issue financial instruments in the market at attractive rates and low costs to the Bank, thereby ensuring a sturdy capital position and supporting our ability to distribute favourable dividends. Through strategic focus and operational resilience, Bank Islam has successfully navigated the complexities of the economic landscape, maintaining a trajectory of sustainable growth. 26 Bank Islam Malaysia Berhad ◆ Integrated Annual Report 2023 Financial Review by the GCFO
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