AmBank trims workforce, analysts bank on financial performance
KUCHING: AMMB Holdings Bhd (AmBank) is embarking on a mutual separation scheme ( MSS) for a selection of its employees and analysts believe that this could lead to an improved financial performance.
According to an email to staff on Monday, as sighted by The Edge Financial Daily, eligible, confirmed employees of AmBank Bhd, AmInvestment Bank Bhd, and AmBank Islamic Bhd could apply for the MSS over a two-week period, starting Monday.
The MSS is also a voluntary package with a take it or leave it basis.
Fol lowing a meeting with analysts, AmBank explained to the research of arm of Kenanga Investment Bank Bhd ( Kenanga Research) that it expects around 1,500 to 2,000 staff or 14 to 18 per cent of its total workforce to take up the MSS offer.
“We are positive on the offer with a conservative estimation cost of between RM70 and RM140m which is expected to be reflected in the fourth quarter of 2018 (4Q18).
“Cost savings are expected to be around RM60 million to RM70 million moving forward,” it opined.
Explaining further, it noted that AmBank had stated that the voluntary separation scheme ( VSS) was inevitable, as the group embarks on its T4 aspirations since last year.
“With operational efficiency in mind coupled with the impact of digitisation, it has become necessary to shave off staf f without the necessary skillsets with the added objective of allowing opportunity for
those who wants to ply their trade somewhere else,” the research team added.
Meanwhile, the research arm of MIDF Amanah Investment Bank Bhd ( MIDF Research) said the impact of the MSS offer would be seen in 4QFY18, which it estimated additional one-time cost in range of RM170 million to RM250 million.
“The rationale for the MSS is to reduce its operational leverage and increase efficiency. Based on previous staff rationalisation exercise, we expect the group to improve its cost-to-income (CI) ratio in the longer term.
“We estimate that the CI ratio can improve by as much as minus six percentage points from 57.2 per cent recorded in the first half of FY18 (1HFY18),” it added.
Going forward, MIDF Research noted that the group would be focusing on accelerating its Enterprise
Banking ( EB) business after building its foundation during the first nine months of FY18 (9MFY18).
“EB is catered for SMEs that is below revenue of RM50 million. The strategy involves semiprogrammed lending whereby borrowers have to meet certain pre- selected criteria to qualify.
“However, the difference with fully programmed lending is that these borrowers are then subjected
to a qualifying judgement for its credit worthiness. The advantage of this practice is that it allows for a faster turnaround for loans applicant but simultaneously will ensure credit risk are properly assess and mitigated. “The management expect that the improvement in loans turnaround time will ensure the group remain competitive. The management also expect to capture other business streams such as current account, saving account (CASA) from its SME clients,” it explained.
Besides SMEs, the research team noted that the group would also focus on the mortgage segment.
“However, we understand the group is being selective on the type of mortgages for its lending activities. The group will be focusing on loans for the owneroccupier homes and affordable homes, which we understand that there is an undersupply situation,” it added.
“We like the fact that the group is conservative regarding its view with risk. The management indicated that it will not be expanding its asset without taking the necessary assessment to the associated risk.
“We believe that this attitude will protect its asset quality. For example, as at 1HFY18, gross impaired-loan (GIL) ratio seems to have stabilised at 1.88 per cent.
“However, our concern for the group is its large exposure to commercial real estate sector with only 50 per cent were classified as strong by the group’s internal risk grades. As at 1HFY18, this amounted to RM7.3 billion,” said MIDF Research.
Previously, AmBank had guided a return of equity ( ROE) of circa 10 per cent within two years time.
“We bel ieve that, whi le achievable, it is an ambitious target. This especially the mix result in its previous quarters and the continued high investment needed.
“However, we believe that the green shoots are there but we opine that due to its size, the group’s transformation may take slightly longer to bear fruit,” it opined.