Long-term positive for AMMB’s sale of non-performing loans
KUALA LUMPUR: Analysts give two thumbs up to AMMB Holdings Bhd (AmBank) proposing to dispose of their respective non-performing loans (NPLs) to Aiqon Amanah Sdn Bhd and Aiqon Islamic Sdn Bhd -- collectively known as Aiqon SPVs.
The proposed disposals by its wholly-owned subsidiaries AmBank (M) Bhd (AmBank) and AmBank Islamic Bhd (AmIslamic) involves an outright sale of the portfolio on a non-recourse basis amounting to an aggregate of RM553.9 million; RM428.1 million in respect of the Ambank portfolio and RM125.8 million in respect of the AmIslamic portfolio.
In a filing with Bursa Malaysia, AmBank stated that both portfolios collectively consist of 0.53 million accounts from both individual and corporate customers and the types of products includes loans/financing to SMEs, HP, mortgages, personal and credit cards and are fully written off in the books of AmBank and AmIslamic.
The purchase price by Aiqon was arrived on a willing buyerwilling seller basis and falls within the valuation range of RM450 million to RM500 million.
The rational of the proposed disposal is to strengthen its loans/financing management and monetise the portfolio. The proceeds from the disposal will be utilised by AmBank and AmIslamic for their respective working capital purposes within a year of the expected completion date of March 31, 2019.
MIDF Amanah Investment Bank Bhd (MIDF Research) said this move would lead to positive impact for AmBank’s earnings although this is yet to be quantified.
“We expect the proposal sale will have a positive impact to earnings. However, it could not be quantified as yet given that the Headline Purchase Price is subject to adjustments,” it estimated in a report yesterday.
“Nevertheless, based on our initial estimation, we believe that the sale could add between 14 and 20 per cent from our current FY19 earnings forecast. Also, this could potentially add another 5sen to 10sen to our normalised target price. In terms of asset quality ratio, it will not have any impact given that the portfolio has been fully written off.”
MIDF Research saw that AmBank could concentrate on growing the “right” loans portfolio.
“We believe that the sale will be positive for the group, not just in terms of one-off earnings gains but also from an operational stand-point. This could allow for the group to further focus on growing its loans book in its targeted areas,” it added.
These are namely mortgage, SMEs and card receivables which as at 2QFY19 expanded by 20.8 per cent year on year (y-o-y) to RM29.1 billion, 19.9 per cent y-o-y to RM18.1 billion and 22 per cent yo-y to RM2.2 billion respectively.
“We are positive on this latest update as it will have a positive earnings and operational impact. However, we believe that this is a one-off item and the group will need to further improvement. For example, retail current account and savings account (CASA) growth remains sluggish compared to total deposits and non-retail CASA growth.
“As a result, net interest margin (NIM) continues to be under pressure. Moving forward, we would like to see this CASA segment to grow at a faster rate in order to stabilise the NIM compression.”
In a separate note, Kenanga Investment Bank Bhd (Kenanga Research) was positive on the disposal in the long term.
“By converting these NPLs into cash the disposal is likely to enhance AmBank CET1 and its CAR ratios by 46 basis points (bps) and 49bps, respectively assuming the final sale is valued at RM500 million and the proceeds are not fully utilised.
“If the proceeds are fully utilised, its CAR ratio is likely to drop by 8bps. The utilisation is also likely to support AmBank’s funding needs, lowering funding costs and mitigating downside pressure on NIM ahead.
“As the disposal is still at the proposal stage, we make no changes to our FY19E/FY20E earnings of RM1.20 billion and RM1.27 billion.”