Published March 13, 2009

Maybank in for longest share slide in 22 years

Financial stocks hard hit by fears of more capital raisings

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(KUALA LUMPUR) Malayan Banking (Maybank), Malaysia's biggest bank, was set for its longest losing streak in 22 years on speculation bad debts will increase and capital-raising plans will erode earnings.

Maybank, which last month announced a RM6 billion (S$2.5 billion) rights offer to boost capital, slid for an 11th day, losing 6.45 per cent yesterday to close at RM4.06. Public Bank fell 3.4 per cent to RM7.05, the lowest since Nov 24, 2006. The Kuala Lumpur Finance Index slid 2.6 per cent to the lowest since Oct 6, 2003.

'Financial stocks are under a lot of pressure, there's a lot of fear in the market on capital raisings; as long as that fear is around, you have to be mindful of it,' said Scott Lim, who oversees about US$800 million as chief executive of MIDF Amanah Asset Management Bhd in Kuala Lumpur. 'Investors are fearful of coughing up more money.'

Finance Minister Najib Razak this week unveiled a RM60 billion stimulus plan and warned that the economy may contract this year for the first time in a decade as exports slide.

After the rights offer, Maybank stock 'hasn't found the bottom yet,' said Keith Wee, an analyst at OSK Research Sdn. In addition, the market has yet to 'price in' the prospects of an increase in bad loans by banks in Malaysia, he said.

More Malaysian companies may choose to raise funds by selling new shares to existing investors as they find it increasingly difficult to obtain loans amid the credit crunch, the Malaysian Business Times reported yesterday.

Widening yields will also make it more expensive for companies to sell bonds, the newspaper said, citing the Securities Commission chairman Zarinah Anwar. Bank loans are getting harder to get as lenders become more stringent, the report said.

Malaysia's borrowing costs rose from a record low at a five-year note auction yesterday on concern that debt sales will increase to fund the government's stimulus spending.

There is no risk Public Bank will implement a rights offer, though there is concern the slowing economy will fuel an increase in bad debts and hurt the lender's ability to pay higher dividends, Mr Lim said. Public Bank has fallen for eight straight days, the longest slide since 1991.

Public Bank last month proposed a final cash dividend of 25 sen a share and a payment of one share for every 35 held.

'You might have to forecast a less optimistic outlook on the banking sector and the NPL provisioning could creep up,' Mr Lim said. 'There is a risk there, naturally your earnings will be affected, and therefore you cannot give as much dividends.'

On March 10, Public Bank had its stock rating cut to 'sell' from 'outperform' by CLSA Asia Pacific Markets because of 'weak' capital ratios. - Bloomberg