Maybank focused on preserving asset quality
KUALA LUMPUR: Given the current environment, analysts at Kenanga Investment Bank Bhd (Kenanga Research) sees that Malayan Banking Bhd (Maybank) is more focused on preserving asset quality rather than growth.
“In any case, demand, especially from the corporate segment, has also been muted due to the uncertain outlook.
“That said, Maybank still sees pockets of opportunity for growth coming mainly from the domestic operations, namely retail and the SME (SRF and other SME lending programmes) segments,” it said in an update yesterday.
Similar to most of the other banks, the vulnerable segment was Maybank’s main focus when it was reaching out to borrowers. The vulnerable segment includes those in the low income group as well as sectors that have been most impacted by the pandemic.
Management had mentioned in Augusut this year that these sectors accounted for around seven per cent of loans. No figures were shared at this juncture as to the take-up rate, apart from it being lower than expected (more details to be shared during the 3QCY20 results briefing).
“That said, management did highlight that rescheduling and restructuring activities will still continue and thus, the takeup rate would rise over time,” Kenanga Research added.
“Recall that Maybank made RM1 billion in management overlay in the first half of its financial year 2020 (1HFY20), the bulk of which relates to several specific accounts.
“We understand that the preemptive provisions remain preemptive, meaning the allowances have not “crystalised” as the loans have not deteriorated at this juncture. In fact, we were made to understand that overall asset quality has largely been stable.
“While the stability of asset quality thus far is a positive, Maybank will continue booking in pre-emptive provisions and build up its loan loss reserves. For now, management maintained their 2020E credit charge guidance of 75 to 100 basis points (bps).”
Following on the 1HFY20 results, Kenanga Research revised up its FY20E credit cost assumption for Maybank to 93bps from 80bps but tweaked down FY21E charge-off assumption to 67bps from 70bps. All-in, it now forecast a two-year (FY20-21) credit cost of 160bps from 150bps.
“As for dividends, hot much guidance was provided on this front, but management did say that assuming a similar payout ratio to peers (circa 30 per cent), and after taking into consideration the outlook and capital plans, among others, an all cash dividend is a possibility.
“We are also updating our FY20E dividend payout assumption with a downward revision to 40 per cent from 70 per cent to be in line with the range assumed for other banks. With the lowered payout, we assume an all-cash dividend. Our FY21E payout assumption of 70 per cent is unchanged.”