AMMB rides on recovery

Robust loan growth and net interest margin seen

“AMMB is guiding for a dividend payout of 35% to 40%, in line with our assumptions of 40% from FY23 to FY25.” CGS-CIMB Research

PETALING JAYA: A research house has reaffirmed its “add” call on AMMB Holdings Bhd premised on an expected recovery in loan growth and the expansion in net interest margin arising from interest rate hikes.

CGS-CIMB Research said following a session with the lender, it is “relatively more positive” on AMMB as its guidance depicts a more robust loan growth expectation versus the research house’s as well as a higher dividend per share (DPS).

“AMMB is guiding for loan growth of 6% to 7% in financial year (FY) ending March 31, 2023 versus our more conservative forecast of 5.4%.

“That said, its loan growth should recover in the next three quarters from the weaker pace of 3.9% as at end June, which was brought down by some chunky corporate repayments.

“Banks would have to provide some additional provisioning for the assumption of higher expected credit loss from the increase in interest rates.

“However, this could be cushioned by the high management overlay maintained by banks (Rm424mil as at end-june, in the case of AMMB),” said the research house.

It noted that AMMB has resumed its dividend payments in FY22 with a DPS of five sen, after the pause in FY21 due to a one-off 1Malaysia Development Bhd settlement of Rm2.83bil.

“AMMB is guiding for a dividend payout of 35% to 40%, in line with our assumptions of 40% from FY23 to FY25.”

In its report to clients, CGS-CIMB Research also pointed out that the competition for deposits would remain stiff in the next one to two months as banks are looking to attract fixed deposits which will expire by year-end.

“According to AMMB, a high percentage of banks’ fixed deposits will expire in December. Given the headwinds from Covid19, elevated inflation and hikes in overnight policy rate, AMMB expects a rise in the delinquencies for mortgages and small and medium enterprise (SME) loans although the increases would be manageable,” said CGSCIMB Research.

It noted that AMMB has experienced a good traction in the adoption of digital banking by its customers as around 90% of its transactions are carried out through digital platforms.

“Going forward, the bank’s strategies for digital banking would be the setting up of

fully digital kiosks, store-within-a-store concept and physical branches to be more focused on SME clients,“it said.

“The potential downside risks to CGSCIMB’S call include a deterioration in asset quality and moderation in loan growth as well as a strong pick-up in deposit competition in the banking industry which could offset the positive impact from interest rate hikes,” the research house said.