BSA discontinuation negative for STMB, but long-term prospects intact

KUALA LUMPUR: Analysts are generally negative on the impact of RHB Islamic Bank Bhd’s (RHB Islamic) announcement on its discontinuation of its Bancatakaful Service Agreement (BSA) with Syarikat Takaful Malaysia Keluarga Bhd (STMB).

However, they are not overly concerned over its impact on STMB’s prospects given that its bancassurance channels make up less than 50 per cent of the group’s gross contributions

In a filing on Bursa Malaysia, RHB Islamic announced that it is discontinuing its BSA with STMB. The BSA is expected to end on July 31, 2020. RHB Islamic also announced that it is in the process of securing a new long-term takaful partner and it expects to complete the process before 31 July.

“We are negative on the news, but not overly concerned,” the research team at Kenanga Investment Bank Bhd (Kenanga Research) said in a report.

“Though the termination was not expected as the service agreement was previously stamped to be 10 years (albeit at a five-year plus five-year renewal clause), we do not anticipate material impact from this development as we estimate that STMB’s total bancassurance channels make up less than 50 of the group’s gross contributions,” it explained.

It noted that the heavyweight contributor under its bancassurance category might be Bank Rakyat (signed in July 2018) which is largely attributed to the 26 per cent ninemonth year to date (YTD) growth. Its other major banca partnerships are with Bank Islam and Affin Bank.

“Furthermore, the service agreement would still provide seven months of contribution in FY20. We are not expecting similar discontinuation cases to occur in the near future,” it added.

Overall, Kenanga Research said it is still bullish on STMB’s long-term sustainability.

“Putting banca channels aside, the group rides on its strong agency force with digitalised platforms boosting direct sales to customers. Its remaining bancassurance partnerships are still expected to remain productive but may not see similar growth tractions as in the earlier reported quarters,” it added.

Additionally, it highlighted that STMB’s own efforts are in place to build a leaner and more sustainable operating environment in the long term, as reflected by its recent performance ratios.

Aside from that, Kenanga Research said Bank Negara Malaysia’s continuous agenda in extending the country’s Islamic finance portion to 40 per cent should bode well for the takaful industry.

Meanwhile, on the impact of RHB Islamic discontinuation of its banca partnership STMB’s subsidiary; BIMB Holdings Bhd (BIMB), the research team at Maybank Investment Bank Bhd (Maybank IB Research) believed that the impact would be minimal.