KUCHING: Further recoveries are expected from AMMB Holdings Bhd (AmBank) but analysts also opine that the group should not solely rely on the cost factor to sustain its earnings growth.
According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), AmBank’s first nine months of 2019 (9M19) performance was commendable despite loans moderating for the third quarter (3Q) (but still on track) and net interest margin (NIM) facing downside pressure momentum coupled with weak fee-based income performance, as credit recoveries were a surprise.
“We expect further recoveries ahead,” Kenanga Research said in its results note.
“The recovery in 3Q was a welcomed surprise given that management had earlier indicated of normalisation of credit costs in financial year 2019 (FY19).
“We understand from management that FY19 will see a credit recovery (due to the sale of non performing loans (NPLs) to a special purpose vehicle (SPV)) and normalisation of credit costs will occur in FY20 (with credit charge of 20 to 30 basis points (bps)).”
While loan traction moderated in 3Q, the research arm maintained its view of loans growing approximately six per cent for FY19, underpinned by small and medium enterprises (SMEs), Mid-Corp, supported by the credit card space with likely traction from corporate loans.
“Management guided for NIM compression (versus earlier guidance of flattish NIM) due to competition for deposits ahead mitigated by lower funding costs (from higher intake of SMEs and Mid-Corp ahead) and higher yielding assets, especially from wholesale banking.”
Meanwhile, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) observed that the cost rationalisation initiative undertaken in FY18 continue to be a positive factor.
“However, we opine that the group could not solely rely on the cost factor to sustain its
earnings growth,” MIDF Research said.
“Our concern is on the tepid income growth but this is allayed by the fact NII remains robust.
“This is especially as observing the strong current account and savings account (CASA) growth as at 3QFY19.”
The research arm also noted that non-interest income (NOII) weakness were not entirely avoidable given the market conditions in the second half of current year 2018 (2HCY18) and should recover slightly in CY19.