Published November 13, 2008

Bumpy ride ahead for M'sian banking sector

Maybank hurt by impairment losses of RM242m at its Pakistan associate

By PAULINE NG
IN KUALA LUMPUR

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MARRED by its overseas investments, Malayan Banking's first-quarter earnings could presage a bumpy ride for the banking group in a slumping economy.

Not bullish: Maybank's unfortunate aggressive foray overseas amid a global financial meltdown is expected to haunt the group in the coming quarters

The country's biggest banking group posted a net profit of RM572 million (S$240 million) for the quarter ended September, 22 per cent lower than a year ago, and 19 per cent less than the previous quarter.

In comparison, two other local banking groups, AmBank and Hong Leong, posted an increase in earnings for the same period. Hong Leong's earnings were 29 per cent up, while AmBank's second quarter was nearly double last year's.

Hong Leong's earnings received a boost mainly from higher forex gains and treasury activities, banking analysts said, while AmBank's better showing could be traced to its adoption of the central bank's revised guidelines for the reclassification of securities into a held-for-trading category.

Even so, Maybank's unfortunate aggressive foray overseas amid a global financial meltdown is expected to haunt the group in the coming quarters.

Its first-quarter bottom line was hurt by impairment losses of RM242 million at its associate Pakistan bank MCB, along with lower non-interest income, lower recoveries and higher overhead expenses.

Impairment losses arising from its controversial acquisition of Bank Internasional Indonesia (BII) are bound to add further weight.

'I don't think the market is surprised because Maybank had said it would be making impairment charges this year,' said AmResearch banking analyst Fiona Leong, who is more concerned about the bank's inability to translate its robust loans growth of about 13 per cent y-o-y into stronger net interest income. Year-on-year, net interest income dropped 4 per cent, and 6 per cent q-on-q.

Although non-interest income is also below par, nearly all banks are in the same boat given capital market-related activities have been hit by the financial meltdown.

The expansion in consumer loans is already flattish for the sector, and analysts expect overall loans growth to moderate next year.

Hong Leong's results show that lending to securities, construction and working capital have shrunk, observed Ms Leong. 'It's a given loans growth will moderate, but it's a question of how much.'

Many remain sceptical Maybank will see returns over the next few years on the RM7 billion-plus it agreed to pay for Indonesia's sixth largest bank. The price amounts to a still pricey 4.2 times book instead of the original 4.8 times, thanks to a discount thrown in by the vendors after convoluted negotiations.

Not only will financing costs for BII's acquisition be elevated by the current credit crunch, Maybank's tight-rope walk in an increasingly tougher operating environment would invariably include an increase in loan loss provisions for BII.