Malayan Banking: Banking

THE COMPANY: Malayan Banking (Maybank) commenced operations in 1960, and was listed on the Kuala Lumpur Stock Exchange, now Bursa Malaysia, in February 1962. Today Maybank is the largest company by market capitalisation on the bourse. It is also Malaysia’s biggest banking institution, with total assets of some RM453bn ($146.13bn), as of year-end 2011, 2200 offices in 19 countries and 22m customers. In terms of services, Maybank’s offerings range from commercial banking, investment banking, insurance, stockbroking, offshore banking, Islamic banking and asset management. Domestically, Maybank’s commercial and Islamic banking operations are the largest in the country, while its insurance arm, Etiqa, is the biggest player in both the life/family and general insurance segments.

Maybank’s international commercial banking presence spans 13 countries, with a primary focus on ASEAN markets, specifically Singapore, Indonesia, the Philippines, Cambodia, Vietnam, Brunei Darussalam and Myanmar. Outside of South-east Asia, Maybank has branches in strategic markets such as China and the Middle East, as well as in the financial centres of London, New York and Hong Kong. Maybank’s global network is also complemented by associate stakes held in Pakistan’s MCB Bank and Vietnam’s An Binh Joint Stock Commercial Bank. Based on the financial period ended on December 31, 2011, Malaysian operations made up 74% of group pre-tax profit, while Singapore and Indonesia contributed 16% and 5%, respectively.

DEVELOPMENT STRATEGY: Maybank’s headline key performance indicators for fiscal year 2012 are: return on equity of 15.6% and loan and debt securities growth of 15.2%. Other targets include group loan growth of 16.2%, comprising loan growth of 13.6% for Malaysia, 11.4% for Singapore and 20.9% Indonesia; and group deposit growth of 12.3%. In the results for the second quarter of 2012, Maybank’s annualised gross loan growth stood at 14.6%, slightly below the 16.2% target. Domestic loan growth outpaced industry at 15.8%, led by corporate and consumer lending at 24% and 13%, respectively, (figures are annualised). Loan base in Singapore was up 10% (annualised in RM terms), partly affected by lower trade financing and efforts to preserve net interest margins (NIMs). Indonesia was up 12% (in RM terms), partly affected by the depreciation of the issuer default rating. Annualised deposit growth was 17%. Management was still positive on loan growth prospects and appeared confident that the domestic operations would be able to beat industry growth.

We believe this will be aided by the implementation of projects under domestic economic programmes, especially, the Economic Transformation Programme (ETP). As projects are rolled out, corporations will need to raise funding and Maybank’s strong presence means the bank is well positioned to reap the early tangible benefits from the ETP. For Singapore, Maybank expects growth to pick up further in the second half of 2012.

As for Indonesia, performance is expected to be in line with industry. Management stressed that expansion would not occur at any cost and that they would walk away from deals if the pricing was not attractive, even if this results in missing the 16.2% group loan growth target. Maybank has guided for NIM compression of 10 basis points (bps) this year with pressure coming from both asset yield and funding cost, and in all three major markets. As for asset quality, while the ongoing weakness in global macro conditions could see a handful of companies affected, management does not think there would be any major blow-ups and overall asset quality should remain intact. According to management, the group has built sufficient buffers, with loan loss coverage currently in excess of 100%. Maybank continued to guide for credit cost of between 35 bps and 40 bps for 2012. Maybank recently raised RM3.7bn ($1.2bn) via a private placement exercise. This was prompted by recent regulatory developments and organic growth opportunities ahead. With private placement, group core equity tier 1 ratio would rise to 9.27%, putting the group on more comfortable footing to meet the capital requirements under Basel III.