KUALA LUMPUR: The performance of the domestic and global investment markets until the end of this year will determine whether Lembaga Tabung Haji (TH) can maintain its profit distribution level.
Executive director of group finance Mustakim Mohamad said TH would continue to strive to provide reasonable returns to its depositors despite facing various challenges to maintain its profit distribution rate due to the weak domestic and foreign markets.
“The current investment environment is very challenging for all investment institutions, including TH, to maintain the level of profit distribution for 2022 similar to the previous years,” he told Bernama.
“Like all investors, TH is not excluded from the ongoing effects of the post-pandemic Covid-19, which puts double pressure on income (due to the increase in financing rates and economic and market weaknesses) and also expenses (due to the increase in inflation and the weakness of the foreign exchange rate).”
However, he said TH would continue to make every effort to provide a reasonable return to its depositors, in line with its mandate of managing the savings of Muslims to perform haj.
He said the Russia-Ukraine war, China’s zero-Covid policy, significant increases in inflation and loan or financing rates, a weakening economy, stock and capital market uncertainties, and the fall of the ringgit against foreign currencies, especially the US dollar, have had a negative impact on TH and other investment institutions in Malaysia.
He said all investment institutions, including TH, were not spared the effects of economic and market weaknesses, especially when the FBM KLCI fell by more than 10% and the global market plunged by around 30% in 2022.
Mustakim said the impact of the significant decline in the stock market was exacerbated by the increase in interest rates, which affected the value of fixed-income instruments such as sukuk.
The increase in the cost of haj affects the distribution amount.
Profit distribution
Meanwhile, he said the sharp increase in the cost of haj due to the additional costs imposed by Saudi Arabian authorities would also have an impact on TH’s total profit distribution this year.
“For the last two years (2020 and 2021), we did not send Malaysian pilgrims to perform the haj due to a decision by the Saudi Arabian government following the Covid-19 pandemic, therefore, TH did not bear haj-related expenses, including haj financial assistance.
“However, pilgrims from outside Saudi Arabia have been allowed to perform haj again this year, and the amount of haj financial assistance borne by TH is almost RM200mil plus operational expenses incurred amounting to almost RM50mil,” he said.
He said TH has implemented a prudent and defensive investment approach to ensure depositors’ savings are not too affected by market uncertainty.
Mustakim said TH had made improvements in terms of strategic asset allocation, starting in 2019, to be more in line with TH’s establishment objective, which is to manage savings for haj matters for the medium and long term.
The allocation of assets to fixed income instruments such as sukuk was increased to 58% of assets under TH management, while the allocation of assets to stock investments (equity) was reduced to 23% to guarantee more stable returns and be less affected when stock market conditions are uncertain.
He said the strategy has shown positive results, with the total income recorded in the first half of 2022 remaining resilient with a decrease of only 3% compared with the same period in 2021, despite the challenging economy and uncertain market.
Mustakim said savings returns in TH were also competitive in 2020 and 2021, with rates higher than syariah savings in local banks.
Besides benefitting from the return of profits on their savings, TH depositors also contributed directly to help Malaysian pilgrims through the haj financial assistance.
Sustainable return
TH also paid zakat on behalf of depositors, and they no longer need to pay zakat on savings and profit distributions received.
“Usually, if investment institutions want high returns, they have to take high risks as well, but TH can’t take high risks because it is contrary to TH’s mandate, which is to remain in place to manage haj affairs, and a stable and sustainable return is more appropriate,” he said.
Mustakim said income from fixed-income instruments that provided more stable returns now constituted the majority of TH’s total income.
“The asset allocation was also optimised to be proportional to low and medium risk in order to maximise medium and long-term returns,” he said.
