Maybank Q1 pre-tax profit at Rm2.8bil

Bank cautions on challenging outlook despite stronger results

PETALING JAYA: Malaysia’s largest listed banking group Malayan Banking Bhd (Maybank) has cautioned about its “very challenging” outlook and the likelihood of potential margin compression ahead, as it began the financial year of 2020 (FY20) with marginal loans growth and a decline in total deposits.

The bank, which is also South-east-asia’s fourth largest bank by assets, hence hinted at potentially lowering its return on equity (ROE) target for FY20, which was raised to 11% previously.

It also expects its asset quality to weaken further once the ongoing loan moratorium period ends by end-september.

While Maybank’s net profit jumped by 13% year-on-year in the first quarter of FY20 (1Q20), the bank said the latest results are not representative of the next three quarters’ financial performance.

According to its group president and chief executive officer Datuk Abdul Farid Alias, the largest contributor to the first quarter results came from the selldown of some of Maybank’s liquid assets and fixed income instruments, which was above the optimal level.

“This resulted in a 53.2% rise in our net fee based income, which then lifted our net operating income by 14.7%.

“While we still hold a large level of liquid assets, we need to strike a balance when selling them to ensure that it will not contract our net interest income, particularly in the current declining interest rate regime globally,” he said in a statement yesterday.

Maybank’s net profit in the January-march 2020 period rose by Rm240.39mil or 13.29% y-o-y to Rm2.05bil. Pre-tax profit climbed 14.2% to Rm2.8bil from Rm2.45bil.

Earnings per share were 18.23 sen compared with 16.37 sen a year ago.

Meanwhile, its revenue rose by 1.9% y-o-y to Rm13.22bil from Rm12.97bil in the same quarter a year ago.

Maybank’s net interest income and Islamic banking income increased by Rm81.8mil or 1.8% y-o-y to Rm4.53bil. On the other hand, its net earned insurance premiums from the insurance and Takaful subsidiaries increased by Rm318.4mil or 19.6% y-o-y to Rm1.94bil.

Other operating income fell by 20.5% y-o-y to Rm1.33bil, largely due to unrealised markto-market loss on revaluation of financial assets or liabilities at fair value through profit or loss, derivatives as well as loan, advances and financing of Rm282.5mil.

The group’s allowances for impairment losses on loans, advances, financing and other debts increased by Rm357.7mil or 59.2% y-o-y to Rm961.7mil from a year ago.

The cost to income ratio improved to 43.7% in the first quarter, down from 47.9% last year.

In acknowledging the challenging and uncertain operating environment ahead, which was partly due to the Covid-19 pandemic, Maybank said that it will re-evaluate its headline key performance index (KPI) for ROE.

This will be done once the impact of economic slowdown on its operations could be ascertained. The bank had previously set its headline KPI for ROE at 11% FY20, up from 10%.

In the first quarter of FY20, Maybank’s overall loans grew marginally by 0.3% y-o-y, although loans at its Malaysian operations expanded by 5% y-o-y, lifted by increases in both the community financial services and global banking segments.

However, this was partly offset by declines in both the Singapore and Indonesian operations in line with the group’s strategy to realign their portfolios owing to changes in the risk profiles of certain segments.

Meanwhile, the banking group’s total deposits recorded a 2.5% y-o-y decline in the three-month period.

According to Maybank, this was consistent with its approach to focus on lower cost current and savings accounts (CASA), and reduce higher cost fixed deposits.

“The ratio of CASA to total deposits rose significantly to 38.4% from 34.5% a year earlier, buoyed by improvements in Malaysia and Indonesia.

“As a result of the active management of funding as well as discipline in pricing, and despite the two reductions in the overnight policy rate during the period under review, the group managed to contain pressures on its net interest margin (NIM) for the quarter.

“Its NIM as at March 2020 only narrowed by seven basis points to 2.23% from 2.30% a year earlier,” it said.

Meanwhile, the capital and liquidity positions of Maybank remained robust in the first quarter. Its CET1 ratio strengthened to 14.79% while total capital ratio stood at a comfortable 18.50% (after the second interim dividend for FY19), maintaining its position as one of the best capitalised banks in the region.

Maybank’s liquidity coverage ratio, meanwhile, was at a healthy 138.2%, which was well above the regulatory requirement of 100%.

However, its gross impaired loan ratio as of end-march 2020 moved up to 2.71% as compared to 2.48% last year.

Moving forward, Maybank said the group will leverage on its diversified franchise to drive revenue growth, enhance customers’ experience through digital innovations and continue up-skilling its workforce to improve productivity.

“Amid the expected challenges of the external environment, Maybank group will prioritise its capital and liquidity strength, maintain selective balance sheet expansion in tandem with the group’s risk appetite and remain focused on our ongoing cost discipline.”