By MARK RAO / Graphic By TMR
AMMB Holdings Bhd’s (AmBank Group) net interest income (NII) is expected to continue underlining its topline as the bank aims to select business segments for growth and the repricing of loans industry-wide to achieve higher margins.
CEO Datuk Sulaiman Mohd Tahir said its NII will be supported by the continued momentum in its mortgage, small and medium enterprises (SMEs) and credit card loans segment, while non-interest income is expected to be driven by wealth management, and corporate and commercial banking.
He said the bank’s credit cost would continue to normalise with reduced recoveries relative to our 2017 fiscal year (ended on March 31 last year) as impairment allowances are expected to commensurate with loans growth.
“We will continue to manage our funding mix, grow current and savings accounts and diversify our portfolio for sustainable net interest margins (NIMs),” Sulaiman said in a statement yesterday.
Speaking on the overall banking industry, he said banks’ NIMs are expected to improve modestly in 2018 as they reprice loans to compensate for higher provisioning under Malaysian Financial Reporting Standards 9: Financial Instruments coupled with milder pressure on funding costs.
AmBank Group is also projecting a loan growth of approximately 5% for the industry in 2018, in line with Malaysia’s expected gross domestic product expansion of 5.5% this year.
For its third quarter ended Dec 31 last year (3Q18), Malaysia’s sixth-largest lender posted a net profit decline by 30.1% year-on-year to RM218.98 million, as higher impairments hit the bank’s retail, and corporate and commercial banking segments.
Discounting the impairment losses, operating profit for the banking group was higher by 14% at RM382.66 million, in line with revenue climbing 9.1% to RM2.16 billion on stronger NII.
For the nine-month period that ended in 3Q18, net profit was down by 11.1% YoY at RM878.72 million due to higher expenses and impairments, while revenue rose 3.6% to RM6.36 billion.
Ope rat i ng expens e s incurred by the group were 7.3% higher on retail operating losses and investment costs, while funding costs from customer and bank deposits rose due to the increase in average deposit balances.
Meanwhile, the retail banking segment recognised an impairment of RM41.6 million from lower overall recoveries, while the corporate and commercial segment incurred an RM198.1 million impairment from conservative provisioning and lower recoveries.
The latter was also hit by a 30.6% increase in operating expenses on higher personnel cost from annual increment and the expansion of its business banking.
Despite the decline in profit, turnover for the ninemonth period was higher, in line with total income rising 5.4% to RM2.91 billion due to the 8.8% growth in NII and NIM improving from 1.96% to 1.98%.
NII growth was supported by customer lending and interest on fixed-income securities.
The bank also grew its gross loans and financing by 4.1% YoY to RM94.7 billion on mortgages and growth in SME loans.
Gross impaired loans ratio improved to 1.77% with a higher loan loss coverage at 101.6%, while its total capital ratio was at 16.1%. Common equity tier-1 ratio was at 11.3%. As part of its four-year strategy to pare down costs and improve efficiency, AmBank Group streamlined and centralised some of its operational processes.
“As a result, we were able to offer a Mutual Separation Scheme (MSS) to employees in January 2018.
“This scheme is offered purely on a voluntary basis and provides eligible employees with the opportunity to self-identify their willingness to voluntarily part ways with the group,” Sulaiman said.
He said the MSS will allow the banking group to optimise its organisational structure and provide greater savings and efficiency over the long term.
The bank did not declare a dividend in 3Q18.