Singapore asset continues to drag Maybank’s overall performance
KUCHING: Despite clocking in better results this financial quarter, Malayan Banking Bhd’s (Maybank) Singaporean operations continued to drag the group’s overall performance as its gross impaired loans (GIL) ratios rose by 91 basis points year over year (y-o-y) to 2.29 per cent in the second quarter of the financial year 2017 (2QFY17).
In a report by the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), this translated to a 33 per cent increase quarter on quarter (q-o-q) and has contributed significantly to the group’s overall GIL ratio that saw upticks of 19 basis points to 2.53 per cent.
“The main weakness from Singapore stemmed from accounts in the oil and gas (O&G) sector where there were new impairments and impairments of accounts previously upgraded to performing from impaired status,” explained the research arm.
While all Singaporean banks have been hit with weakness from their O&G sector exposures, the research arm noted that Maybank would fare better moving forward as they have managed to reduce their exposure in the sector further to only 1.24 per cent of its total loans book – forming a total of 3.89 per cent exposure in the sector for the group.
Besides issues with O&G, AmInvestment Bank Bhd (AmInvestment Bank) also noted that that there was continued weakness in Maybank Singapore’s and Indonesia’s asset quality of retail smallmedium enterprises (SMEs) and corporate loans.
Slower loans growth were also observed for all of Maybank’s operations via a 6.4 per cent y-o-y loan growth in 2QFY17 compared with the 10.1 per cent y-o-y growth in the preceding quarter.
“2QFY17 saw a slower loan growth in Malaysia of 6.4 per cent y-o-y compared to 7.2 per cent y-o-y in 1QFY17, underpinned by a slowdown in consumer and SMEs while business banking loans remained subdued.
“In Indonesia, loans were decelerated with slower growth in both consumer and corporate loans; its loan growth was behind its management’s guidance of 6.0 to 7.0 per cent for FY17.
“Meanwhile, in Singapore, loan growth was also weaker in 2QFY17 contributed by the deceleration of corporate loans which offset a faster pace of consumer loans,” reported the bank.
Despite the weaknesses in its international operations and slower loan growth, the group still managed to post an earnings growth of 29.9 per cent y-o-y due to lower provisions.
“As we had anticipated, the earnings growth was mainly due to lower provisions, given that the group did a heavy proactive restructuring and rescheduling program in FY16.
“As such, here were lower collective and individual assessment allowance at -28.0 per cent y-o-y to RM818.0 million and -16.6 per cent y-o-y to RM844.1 million respectively,” said the research arm.
And in addition to lower provision, Maybank’s net interest income (NII) also saw a significant contribution to its earnings expansion as it grew to +10.9 per cent y-o-y due to net interest margin (NIM) improvement of 13 basis points y-o-y to 2.41 in 1HFY17 from better loans pricing.
Another bright side to Maybank is its improving liquidity ratio which saw an improvement to 93.8 per cent this quarter from 95.7 per cent in the previous quarter, allowing for the group to boast a liquidity cover ratio of 146 per cent, well above the regulatory requirement of 80 per cent.
MIDF Research believes that this improvement was due to the rebalancing of loans portfolio in Indonesia, and deposits being robust this quarter at +1.2 per cent y-o-y to RM 511.7 billion – lead by their international operations that saw a 3.8 per cent y-o-y increase to RM208.8 billion.
Overall, the Maybank group managed to record a total net profit of RM1.66 billion for this quarter (2QFY17) and while it is a 2.6 per cent decrease q-o-q, it was still within expectations as its cumulative earnings (1HFY17) of RM3.36 billion had managed to meet consensus estimates at 46.6 per cent.
And all in, both analysts are still rather cautious on the banking group due pressure on Maybank Singapore’s asset quality.
However, MIDF Research asserts that the group’s upside of improving operations and strong growth in NII should alleviate this especially as Singapore asset quality pressures are well-contained moving forward.