KENANGA ANNUAL REPORT 2020

112 5 1 2 3 4 6 7 FINANCIAL STATEMENTS FUTURES The futures segment recorded lower loss before tax (“LBT”) of RM2.8 million for FYE20 compared to LBT of RM2.9 million for FYE19 mainly due to higher commission income earned during the year. MONEY LENDING AND FINANCING This segment reported a PBT of RM1.9 million for FYE20 compared to PBT of RM0.8 million for FYE19 mainly due to increase in net income from higher lending and factoring activities. CAPITAL RATIOS The Group and the Bank remain on a strong financial footing with total capital ratios of 24.037% (FYE19: 23.184%) and 24.075% (FYE19: 22.725%) respectively, well above the minimum prescribed by Bank Negara Malaysia (“BNM”) of 10.5% including capital conservation buffer of up to 2.50%. OUTLOOK AND PROSPECTS FOR 2021 The Malaysian economy is expected to recover this year with gross domestic product (“GDP”) growth projected to rebound in 2021 (6.1%; 2020 forecast: -5.1%), on the back of an improved global backdrop, underpinned by a wider rollout of coronavirus (“COVID-19”) vaccines, a possible gradual reopening of international borders, the rebuilding of global supply chains and further acceleration in demand for advanced technology. Continued expansionary fiscal and monetary measures and a low base effect would also contribute to an improved growth outcome. Our forecast is subjected to several downside risks including the unabated surge in COVID-19 infections locally and abroad resulting in tightened restriction measures, elevated domestic political uncertainty with the possibility of a snap general election in the first half year of 2021 and potential renewal of US-China trade tensions under the Joe Biden’s administration. While we expect the BNM to maintain the overnight policy rate (“OPR”) at 1.75% amid the better economic outlook this year, we note that the decision is highly contingent on the course of the COVID-19 pandemic locally and the degree of tightening actions to curb the spread of the virus in the immediate term. Should things take a turn for the worse, we believe that BNM still has the capacity to cut the OPR by another 25 to 50 basis points. Fiscal policy stance is expected to remain expansionary as reflected by the record-large spending planned under the Budget 2021, though it is constrained by the high deficit as a result of below-average revenue growth. Nonetheless, given the expected improvement in tax revenue and oil price, we project the fiscal deficit to narrow to 5.6% in 2021 (2020 forecast: 6.3%). KIBB will proactively manage its risks such as liquidity, credit and market risks to mitigate the impact of slowdown in the economy resulting from the COVID-19 outbreak. We expect the year to be volatile and challenging but will stay focussed on our strategic objectives of achieving long term sustainable growth through digitalisation initiatives across the Group. INDEMNIFICATION OF DIRECTORS The Bank has maintained a Directors and Officers Liability Insurance on a group basis up to the aggregate limit of RM30.0 million against any legal liability incurred by the directors and officers in the discharge of their duties while holding office for the Group. The directors and officers shall not be indemnified by such insurance for any gross negligence, fraud, intentional breach of law or breach of trust proven against them. The total amount of insurance premium paid for the Directors and Officers of the Bank for the current financial year was RM38,000. DIRECTORS ’ REPORT