Published May 25, 2009

MALAYSIA INSIGHT

Worse to come for Maybank?

By S JAYASANKARAN
KL CORRESPONDENT

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SHARES in Malaysia's largest lender Maybank fell 3 per cent last Friday before closing unchanged at RM5.20 apiece after the bank reported that third- quarter earnings were 32 per cent down from the previous quarter and gross non-performing loans (NPLs) in its international units were 22 per cent up.

For the first nine months for the year to end-June 2009, Maybank registered a core net profit of RM1.7 billion (S$703 million) - a 24 per cent decline from the previous corresponding period.

The lacklustre performance was largely due to a 22 per cent fall in non-interest income and a 32 per cent jump in loan-loss provisioning in its international units.

The bank's results are the worst by a Malaysian bank since the start of the economic crisis nine months ago and could be a sign of the times, heralding bleaker conditions for most companies and financial institutions.

Indeed, at this time last year, the problem wasn't falling revenue but grappling with the increasingly higher costs of doing business, following increasing material and fuel prices. Now, it is the collapse in global demand which has impacted different sectors differently.

In recently released first-quarter results, at least five companies fell into the red: three media companies (Utusan, The New Straits Times Press and Media Prima) and two export-dependent companies (Malaysian Pacific Industries, which makes chips, and Perwaja, which makes steel products).

Banks continue to make profits, but less; both EON Capital and Public Bank, for example, saw profits drop almost 20 per cent year-on-year.

Maybank has more complicated problems, having lost much of its lustre following dubious investments in Pakistan and its pricey acquisition of Bank Internasional Indonesia after it acquired over 65 per cent of the Indonesian bank at close to 4 times its book value.

A massive rights issue - a 9-for-20 issue at RM2.74 apiece - to help part-fund the Indonesian purchase further annoyed investors as it would mean earnings dilution going forward. That's why the Arab-Malaysian banking group called a 'sell' on the stock last Friday, saying that RM4.30 would be fair value.

'We see stock performance capped by weaker performance of its overseas operations while pricey acquisitions would push ROEs (returns on equity) lower for the next few years,' said AMMB in a research report.

Underscoring the fact that falling global demand is the main problem, the bank's domestic operations, which account for 67 per cent of gross loans, remained in good shape. Gross NPLs for the bank's domestic operations actually fell 3.1 per cent to RM5.7 billion quarter-on-quarter.

But the bank's international units - in Pakistan, Vietnam and Indonesia - fared dismally: NPLs surged 22 per cent to RM1.14 billion. Even so, overall net NPLs actually improved 1.8 per cent in March from 1.7 per cent last December.

Could it get worse? It isn't clear but Maybank's management seemed upbeat, suggesting that all impairment reviews on its international units would be completed by June. But Arab-Malaysian's research report suggested otherwise, predicting further impairment losses at Maybank's Pakistani unit as 'its performance has been below expectations'.