KUCHING: Improvements in Malayan Banking Bhd’s (Maybank) results for the first quarter of 2017 (1Q17) indicate that the bank is on track to recovery.
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) noted that Maybank’s core net profit of RM1702.8 million (an increase of 19.3 per cent year-on-year) was in line with expectations.
“The improvement in earnings was primarily due to sharp fall in impairment allowances as topline growth was meagre at three per cent year-on-year (y-o-y),” it expalined.
“Maybank’s loans exceeded expectations, rising by 10 per cent y-o-y due to increases in mortgages and SMEs.”
On a geographical basis, it noted that Maybank’s loans were driven by domestic demand at 7.2 per cent y-o-y with expansion in Singapore and Indonesia.
However, it pointed out that deposits were slower than loans at 4.5 per cent y-o-y with CASA faster than deposits at 16.3 per cent y-o-y, prompting higher CASA ratio, which rose by four percentage points (ppt) to 35.4 per cent.
Despite the better than expected loans growth, Kenanga Research noted that Maybank is still treading cautious ahead.
“However, management sees positive economic fundamentals ahead especiallyfrom Indonesia and Singapore.
“We are cautiously optimistic with the pickup on loans on the back of improved business demand. While net interest margin (NIM) improved tremendously we caution on the uptick as compression will likely occur ahead along with the likely pickup in deposit taking activities when credit demand picks up,” it opined.
In another note, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) said Maybank’s asset quality seemed stable for main consumer portfolio in home markets except mortgages in Indonesia, whereby gross impaired loan (GIL) ratio had risen steadily since 1QFY16.
“For the group’s business portfolio, Singapore saw GIL ratio increasing in SME, business banking and corporate banking segment.
“Business banking appears to be the main concern given all home markets experienced a quarterly rise in GIL ratio, with 57bps to 12.49 per cent, 24bps to 2.66 per cent and 19bps to 1.96 per cent in Malaysia, Singapore and Indonesia respectively,” it said.
Nevertheless, Maybank indicated it is actively managing the situation.
“Meanwhile, situation stemming from the oil and gas sector continues to linger with 11 per cent of the segment’s portfolio were impaired compared with eight per cent as at 4QFY16.
“However, the group’s exposure in this sector had decreased to 4.06 per cent from 4.35 per cent as at last quarter,” it added.
Overall, MIDF Research opined, “The improvements in income and provisions were as we expected. With strong loans growth, robust CASA expansion and steady NIM improvement, we believe it provides a good platform for the Group to continue on its trajectory for a rebound this year.
“Although asset quality remains a concern, we believe that the situation should improve given the improving economic outlook and stable commodity prices. We opine that this could provide a potential upside surprise.”
The research team maintained a ‘buy’ call on the bank. Kenanga Research upgraded its call on Maybank to ‘market perform’.