COLLEGE OF BUSINESS MANAGEMENT AND ACCOUNTING

SULTAN HAJI AHMAD SHAH CAMPUS

SEMESTER 2, 2020/2021

Asset-Liability Management

(FNNB263)

GROUP ASSIGNMENT

SECTION: 1M

PREPARED BY:

STUDENT’S NAME ID NUMBER

1. MUHAMAD HAFIZ YUSRI BF 0107082

2. IMAN AIRINA BINTI ROSLAN BF0107410

PREPARED FOR:
PUAN NOR EDI AZHAR BTE. MOHAMAD
 TABLE OF CONTENTS
N0 PARTICULARS PAGES

1 EXECUTIVE SUMMARY 1

2 INTRODUCTION AND BACKGROUND INFORMATION

3 OVERVIEW OF MALAYSIA’S BANKING SYSTEM

4 ANALYSIS 1: COMPARISON OF THE PROFITABILITY OF

FOREIGN VS CONVENTIONAL BANK
5 ANALYSIS 2: COMPARISON ON INTEREST SENSITIVE
GAP MANAGEMENT
6 CONCLUSIONS

7 BIBLIOGRAPHY
EXECUTIVE SUMMARY

Objective:

The objectives of this report is to compare the performance of asset liability management for
both conventional and foreign bank in Malaysia.

INTRODUCTION AND BACKGROUND INFORMATION

 Hong Leong Bank

Hong Leong Bank Berhad is a regional financial services company based in Malaysia,
with presence in Singapore, Hong Kong, Vietnam, Cambodia and China. The Bank is
technology focused and emphasis the development of financial capabilities to serve its clients
across the five geographies. HLB was originally incorporated as Kwong Lee Mortgage and
Remittance Company in 1905 in Kuching, Sarawak and later as Kwong Lee Bank Limited in
1934, bearing heritage of the oldest local financial institution in Malaysia. Kwong Lee Bank
Berhad was acquired by the MUI Group in May 1982 and renamed Malayan United Bank
Berhad on 2 February 1983. In 1989, it was renamed as MUI Bank. Under the MUI Bank
banner, it grew from 11 to 35 branches nationwide. On 3 January 1994, Hong Leong Group
acquired MUI Bank Berhad through Hong Leong Credit Berhad (now known as Hong Leong
Financial Group Berhad) and renamed it Hong Leong Bank Berhad. The Bank was listed on
the Kuala Lumpur Stock Exchange (now under Main Market of Bursa Malaysia) on 17
October 1994 and since then has grown by leaps and bounds, organically as well as through
mergers and acquisitions. Its merger with EON Bank Group in 2011 placed HLB as
Malaysia’s fifth largest banking group; with over RM200 billion in assets as at 30 June 2019.
HLB’s extensive branch network extends beyond Malaysian borders with one branch each in
Labuan Offshore, Singapore and Hong Kong respectively, four branches in Vietnam, six
branches in Cambodia, as well as a full-service call centre and more than 1,100 self-service
terminals. Wealth Management services are offered through branches in Malaysia, Singapore
and Hong Kong, in addition to various Priority Banking centres located throughout Malaysia
and one in Singapore. As a bank that places customers at the core, HLB leverages the latest in
digital technology to offer meaningful financial products and services that fulfil customers’
needs. We look for opportunities in the challenges faced by individuals and businesses in
their banking needs today so that we can innovate customer experiences tomorrow. We will
continue to embrace opportunities that new technologies bring and strive to deliver the best
digital and human experiences available in the market, so that clients can benefit from
banking with HLB. With the rapidly-changing financial landscape, coupled with fast-paced
technological changes, staying attuned to our customers’ expectations and aspirations are
critical to our ongoing efforts to develop capabilities and banking products and services that
are centred on clients’ needs. HLB’s ethos of being Digital at the Core will continue to propel
us to innovate and leverage on technology to increase efficiency and productivity towards
improving the overall customer experience, as well as to future proof our workforce by
upskilling employees’ competencies and skill sets. The digital ambition of HLB is to
continuously provide our customers with a personalised approach and simpler, more efficient
and seamless banking experience for them to live life “uninterrupted”.
 Mizuho Bank (Malaysia) Berhad

Mizuho Bank (Malaysia) Berhad also known as Mizuho Corporate Bank (Malaysia)
Berhad was incorporated locally in Malaysia on December 29, 2010 and officially
commenced its business in September 2011. It is part of Mizuho Financial Group and is a
wholly owned subsidiary of Mizuho Bank, Ltd, which is headquartered in Tokyo, Japan.
Malaysia and Japan have enjoyed a long standing and complementary
relationship in trade and investment, especially since the 1980s when the
Government of Malaysia decided to put an emphasis on its “Look East Policy”,
which paved a greater avenue for collaborations between the two countries. Since
then, there have been many Japanese investors that have made foreign direct
investment in Malaysia. Mizuho Malaysia is dedicated to serving these bilateral
economic and trade exchanges by providing sophisticated financial solutions and
quality banking services. As recognition of our capabilities and strong
commitment to support and aim to foster closer economic and cultural ties
between Malaysia and Japan, Mizuho Malaysia was appointed lead arranger and
successfully arranged a JPY2,000 billion Samurai Bond issuance by the Ministry
of Finance, Malaysia in March 2019.
From our main office in Kuala Lumpur, Mizuho Malaysia provides a range of
attractive and comprehensive financial services in corporate finance, trade
finance, forex & derivatives, cash management, Islamic finance and advisory to
multinationals and corporate clients in Malaysia.

Mizuho Malaysia is now progressing to the next level to expand our advisory
services. The Mizuho group’s extensive global network enables Mizuho Malaysia
to connect, support and assist our clientele on cross-border opportunities,
building solid business foundations, strategies for business growth, as well as
overseas expansion.

Our advisory services include assistance to establish a foothold in new markets

by connecting and engaging reputable professional service providers in the areas
of administrative, legal and tax advisory on the ground. In addition to promoting
and facilitating foreign direct investment in Malaysia and Japan, Mizuho
Malaysia provides business matching and alliance opportunities between
corporates from both countries.

With our extensive in-house capabilities and strengths,  our total financial
solutions can be tailored exquisitely to meet and surpass our clients’
expectations.
ANALYSIS 1: COMPARISON OF THE PROFITABILITY OF FOREIGN VS
CONVENTIONAL BANK

Hong Leong Bank 2017 2018 2019

Berhad (%) (%) (%)

Return on Equity 22.54 25.49 24.9

Return on Asset 1.06 1.17 1.14

Net Interest Margin 1.7 1.68 1.58

Net Non Interest 0.78 0.87 0.87

Margin

Net Operating 1.49 1.5 1.38

Margin

Mizuho Bank 2017 2018 2019

(Malaysia) Berhad (%) (%) (%)

Return on Equity 2.46 8.22 10.57

Return on Asset 0.21 0.69 0.77

Net Interest Margin 0.76 1.16 1.14

Net Non Interest 0.31 0.71 0.7

Margin

Net Operating 0.43 0.88 0.85

Margin
CHARTS

Return On Equity
30

25.49 24.9
25
22.54

20

15
10.57
10 8.22

5
2.46

0
2017 2018 2019

Hong Leong Bank Berhad Mizuho Bank (Malaysia) Berhad

Return on Equity is used to measure the profitability of a firm with stockholder’s equity. This
indicator is very useful for a sensitive investors where 14% and above is acceptable ratio and
below 10% is considered poor performance. As the graph above illustrate the return on equity
for both local and foreign bank. We can say that Hong Leong Bank performed better than
Mizuho Bank (Malaysia) because Hong Leong Bank return on equity is above 14% and much
higher than 20 percent which definitely good for investors while Mizuho Bank (Malaysia) is
below 10% starting from year 2017 to 2018 but slightly increase above 10% in year 2019 yet
Hong Leong Bank is performing much better than Mizuho Bank (Malaysia).
 Return On Asset
1.4

1.2 1.17 1.14

1.06
1

0.8 0.77
0.69

0.6

0.4
0.21
0.2

0
2017 2018 2019

Hong Leong Bank Berhad Mizuho Bank (Malaysia) Berhad

Return on Assets is an indicator to measure the profitability of a firm to its total assets value.
This indicator is very important for a manager, investor or an analyst as it gives an idea of
how efficient a company’s management is on using its assets to generate earnings where the
higher the percentage of return on assets, the better. In this case, the graph line shows that the
return on assets for Hong Leong Bank Berhad is higher than the return on assets for Mizuho
Bank (Malaysia). This means that Hong Leong Bank is very efficient on using assets to
generate earnings.
 Net Interest Margin
1.8 1.7 1.68
1.58
1.6

1.4

1.2 1.16 1.14

0.8 0.76

0.6

0.4

0.2

0
2017 2018 2019

Hong Leong Bank Berhad Mizuho Bank (Malaysia) Berhad

Net Interest Margin is a measurement comparing the net interest income a bank or financial
firm generates from credit products like loans and mortgages, with the outgoing interest it
pays holders of savings accounts and certificates of deposit. In other meaning, the net interest
margin is a profitability indicator that approximates the likelihood of a bank firm thriving
over the long haul. This metric helps prospective investors determine whether or not to invest
in a given financial services firm by providing visibility into the profitability of their interest
income versus their interest expenses. As the graph above shows that the net interest margin
for Hong Leong Bank Berhad is higher than Mizuho Bank (Malaysia) for three years
consecutive.
 Net Non Interest Margin
1
0.9 0.87 0.87

0.8 0.78
0.71 0.7
0.7
0.6
0.5
0.4
0.31
0.3
0.2
0.1
0
2017 2018 2019

Hong Leong Bank Berhad Mizuho Bank (Malaysia) Bank

Net non interest margin is a financial measurement that helps asses the usefulness of revenue
from non-interest items such as fees and service charges.The banks get income different from
interest charges to its customers. It is measured by subtract non-interest income and non-
interest expenses divided by total earning assets. Hence, the graph above illustrate that in year
2017, Mizuho Bank (Malaysia) is 0.31 percent but suddenly increase drastically in year 2018
which is 0.71 and then maintain 0.7 in year 2019. This simple means that Mizuho Bank
(Malaysia) gains it non interest income faster during 2017 to 2018. Meanwhile, Hong Leong
Bank only increase slightly from 2017 to 2019 and can’t see much differences.
 Net Operati ng Margin
1.6 1.49 1.5
1.38
1.4

1.2

1
0.88 0.85
0.8

0.6
0.43
0.4

0.2

0
2017 2018 2019

Hong Leong Bank Berhad Mizuho Bank (Malaysia) Berhad

Net operating margin is measured of how much profit a bank company could makes on RM1
of sales after paying for variable costs to operate the banks such as advertising, insurance
sales commissions and many more. It is calculated by dividing a company’s operating
earnings by its net sales. By referring to the graph above, it clearly shows that Hong Leong
Bank is operating better than Mizuho Bank (Malaysia) whereby Hong Leong Bank could
make one percent more on profit on sales after expenses on variable costs.
APPENDIX

2017 2018 2019

(%) (%) (%)

Hong Leong 1,744,051/ 1,972,411/ 1,926,911/

Bank Berhad 7,739,063 7,739063 7,739,063

Return On = 22.54 = 25.49 = 24.9

Equity Mizuho Bank 17,230/ 57,556/ 73,898/

(Malaysia) 700,000 700,000 700,000
Berhad = 2.46 = 8.22 = 10.57

Hong Leong 1,744,051/ 1,972,411/ 1,926,911/

Bank Berhad 164,816,685 169,111,037 169,460,620
= 1.06 = 1.17 = 1.14
Return On Asset
Mizuho Bank 17,230/ 57,556/ 73,898/
(Malaysia) 8,226,349 8,300,030 9,649,726
Berhad = 0.21 = 0.69 = 0.77

Hong Leong (6,072,889 - (6269327- (6563015 -

Bank Berhad 3,271,875)/ 3428214)/ 3877560)/
164,816,685 169111037 169460620

Net Interest = 1.7 = 1.68 = 1.58

Margin Mizuho Bank (128,912 - (203007 - (292112 -

(Malaysia) 66,500)/ 107047)/ 182541)/
Berhad 8,226,349 8300030 9649726
= 0.76 = 1.16 = 1.14

Net Non Interest Hong Leong (1,390,282 - (1499585- 1479658/

Margin Bank Berhad 109,273)/ 32649)/ 169460620
164,816,685 164111037 = 0.87
= 0.78 = 0.87

Mizuho Bank (43284 - 17592)/

 (Malaysia) 8226349
Berhad = 0.31

Hong Leong (4191296 -

Bank Berhad 1736002)/
164816685

Net Operating = 1.49

Margin Mizuho Bank (105696 -

(Malaysia) 70479)/
Berhad 8226349
= 0.43
ANALYSIS 2: COMPARISON ON INTEREST SENSITIVE GAP MANAGEMENT

Hong Leong Bank

YEAR INTEREST SENSITIVE GAP RELATIVE IS GAP INTEREST SENSITIVE RATIO

Interest Sensitive Asset – Interest Sensitive GAP Interest Sensitive Asset

Interest Sensitive Liabilities

Total Asset Interest Sensitive Liabilities

Interest Sensitive Asset - 22,188,071 113,131,408

2017 195,552,522
= Cash and short-term funds 135,319,479
+

Deposits and placements with

banks and other financial = - 0.113463486 = 0.83603195
institutions

Loans, advances and

financing

= 10,199,194 + 393,664 +

102,538,550

= 113,131,408

Interest Sensitive Liabilities

= Deposits from customers

Deposits and placements of

banks and other financial
institutions

= 129,859,403 + 5,460,076

= 135,319,479
 = 113,131,408 – 135,319,479

= - 22,188,071

2018 Interest Sensitive Asset

- 24,298,466 112,530,813
= Cash and short-term funds
+ 169,111,037 136,829,279

= - 0.143683501 = 0.822417642
Deposits and placements with
banks and other financial
institutions

Loans, advances and

financing

= 5,550,388 + 2,705,522 +
104,274,903

= 112,530,813

Interest Sensitive Liabilities

= Deposits from customers

Deposits and placements of

banks and other financial
institutions
 = 129,583,425 + 7,245,854

= 136,829,279

= 112,530,813 - 136,829,279

= - 24,298,466

2019 Interest Sensitive Asset

- 23,817,475 114,783,984
= Cash and short-term funds
+ 138,601,459
169,460,620

Deposits and placements with = - 0.14054873 = 0.828158555

banks and other financial
institutions

Loans, advances and

financing

= 4,383,074 + 1,465,940 +
108,934,970

= 114,783,984

Interest Sensitive Liabilities

= Deposits from customers

Deposits and placements of

 banks and other financial
institutions

= 131,396,525 + 7,204,934

= 138,601,459

= 114,783,984 - 138,601,459

= - 23,817,475
Mizuho Bank

YEAR INTEREST SENSITIVE GAP RELATIVE IS GAP INTEREST SENSITIVE RATIO

Interest Sensitive Asset – Interest Sensitive GAP Interest Sensitive Asset

Interest Sensitive Liabilities

Total Asset Interest Sensitive Liabilities

Interest Sensitive Asset 974,373 7,297,319

2017 = Cash and short-term funds 8,226,349 6,322,946

+
= 0.118445375 = 1.15410111
Deposits and placements
with banks and other
financial institutions

Loans, advances and

financing

= 2,475,174 + 1,176,891 +
3,645,254

= 7,297,319

Interest Sensitive
Liabilities

= Deposits from customers

Deposits and placements of

banks and other financial
institutions

= 2,636,143 + 3,686,803
 = 6,322,946

= 7,297,319 - 6,322,946

= 974,373

345,679 7,355,132
Interest Sensitive Asset
2018
8,300,030 7,000,453
= Cash and short-term funds
+
= 0.041647921 = 1.05066515

Deposits and placements

with banks and other
financial institutions

Loans, advances and

financing

= 1,388,718 + 127,813 +
5,838,601

= 7,355,132

Interest Sensitive
Liabilities

= Deposits from customers

Deposits and placements of

banks and other financial
institutions
 = 2,163,831 + 4,836,622

= 7,000,453

7,355,132 - 7,000,453

= 345,679

310,396 8,790,761
Interest Sensitive Asset
2019 9,649,726 8,480,365
= Cash and short-term funds
+ = 0.032166301 = 1.036601726

Deposits and placements

with banks and other
financial institutions

Loans, advances and

financing

= 1,801,692 + 544,393 +
6,444,676

= 8,790,761

Interest Sensitive
Liabilities

= Deposits from customers

 +

Deposits and placements of

banks and other financial
institutions

= 2,397,678 + 6,082,687

= 8,480,365

8,790,761 - 8,480,365

= 310,396
CHARTS OF INTEREST SENSITIVE GAP

Interest Sensiti ve GAP (HONG LEONG BANK)

-21,000,000 A
2017 2018 2019

-21,500,000

-22,000,000

-22,500,000

-23,000,000

-23,500,000

-24,000,000

-24,500,000

Interest Sensitive GAP

negative hole, or a proportion short of what one, happens when a bank's loan fee touchy
liabilities surpass its financing cost delicate resources. A positive hole, or one more
prominent than one, is the inverse, where a bank's loan fee delicate resources surpass its
financing cost touchy liabilities. A positive hole implies that when rates rise, a bank's benefits
or incomes will probably rise. As mentioned in the annual report, the net interest affectability
hole for things not perceived in the explanations of monetary position addresses the net
notional measures of all premium/benefit rate touchy subordinate monetary instruments. As
loan costs and yield bends change over the long run, the Group and the Bank might be
presented to misfortune in income because of the impacts of loan costs on the construction of
the assertion of monetary position. Affectability to intrigue/benefit rates emerges from
crisscrossed in the repricing dates, incomes and different qualities of the monetary resources
and their comparing monetary liabilities financing.
 Interest Sensiti ve GAP (MIZUHO BANK)
1,200,000 A

1,000,000

800,000

600,000

400,000

200,000

0
2017 2018 2019

Interest Sensitive GAP

positive hole, or one more noteworthy than one, is the inverse, where a bank's loan fee touchy
resources surpass its financing cost delicate liabilities. A positive hole implies that when rates
rise, a bank's benefits or incomes will probably rise.

CONCLUSION

Can you conclude the effect of interest sensitive gap towards bank?
Premium is the primary kind of revenue for a bank. Estimating financing cost hazard is a
difficult errand and is made much harder for store organizations in light of the vulnerability
in regards to center store conduct and the choices inserted all through their monetary records.
An antagonistic development in loan fee hazard may conceivably: increment getting costs for
borrowers, diminish returns for financial backers, decrease benefit of banks and lessen the net
present worth (NPV) of associations because of the impact of changes in the markdown rate
(loan cost) on the estimation of monetary instruments, fences and the profit from projects. So,
we can see that an antagonistic development in the loan fee may cause misfortune for the
bank if the bank neglects to make legitimate strides for the administration of financing cost
hazard. Loan cost Risk Management is vital for any bank. When all is said in done, over the
time frame 2017 to 2019, both the genuine and unforeseen changes in Interest Sensitive Gap
Management.

We exactly research the affectability of Hong Leong Bank Berhad (Local Commercial) and
Mizuho Bank (Foreign Commercial) in delicate premium GAP. The facts demonstrate that
the change can dispense the market asset, yet business banks are compelled to bear different
dangers because of high benefit by high store and credit edge. Subsequently, it is important to
know this current change's impact towards loan cost first. One impact is the interest rate
variance brought about by loan fee marketization. When the controlled financing cost is
slackened, it will increment quickly, yet then change unpredictably followed by the market.
Hong Leong Bank's store and advance rate are understandable during the loan fee control
period, so that cost advantage of business banks can be chosen. In any case, when the loan fee
is released, successive vacillation of financing cost adds business banks' bankrupt danger
during the momentary stage. Moreover, financing cost marketization limits store and credit
revenue edge. Store and credit are the fundamental administrations of business banks, which
infers that the fundamental wellspring of income comes from interest edge. After loan fee
marketization, store rivalry will get fiercer. Thusly, banks ought to grow their wellspring of
money to use interest on store to pull in customers. Conversely, the interest for the advance is
still drowsy, which makes banks hard to raise credit rate. The new increments and wide
variances in financing costs have driven numerous banks to a superior comprehension of loan
fee hazard and step by step instructions to oversee it. The utilization of hole the board can be
especially imperative to bank reserves the executives as a procedure to oversee interest rate
hazard. A bank can lessen the danger of misfortune due to horrible changes in loan costs by
supporting its length hole. The utilization of monetary prospects and the span way to deal
with hole the board empowers the bank to keep a foreordained spread.

Conclude on the trends of Interest sensitive gap and performance comparing the two
selected banks.

To summarize, the examination has broken down the danger level and control capacity of
business banks under the financing cost marketization. It very well may be inferred that
through the exploration, the hazard level of the expressed claimed business bank like Hong
Leong Bank are a lot of lower than that of the little and medium-sized bank like Mizuho
Bank. Among them, Hong Leong Bank has the most elevated delicate hole, while Mizuho
Bank has the least touchy gap. Moreover, the high delicate hole makes expressed claimed
banks hard to control the danger, however little and medium-sized banks have the more
grounded capacity on avoiding loan fee hazard since they can respond rapidly to the of
financing cost. For proposals, business banks are recommended to change business structure
and applying pay enhancement technique by lessening the dependence on store and advance
assistance, accelerating monetary development, changing business structure, and expanding
business territories. What's more, loan fee hazard estimation model is the center of financing
cost hazard estimation framework. The possibility and exactness of models are
straightforwardly identified with the endurance of loan cost hazard the board in Malaysia's
business banks.