How foreign banks fare in Malaysia’s competitive banking landscape

The country is deemed to have too many lenders that lead to banks’ margins being squeezed and tepid profits

by ASILA JALIL/ pic by BLOOMBERG

Citibank, the US-based lender, has also been successful in Malaysia (pic by BLOOMBERG)

THE country’s banking sector is competitive. For a population of 32 million and a GDP of US$354 billion (RM1.48 trillion) in 2018, the total financial system outstanding stands at RM1.77 trillion.

Malaysia has 26 commercial banks, 16 Islamic banks, one international Islamic bank (PT Bank Muamalat Indonesia Tbk) and 11 investment banks. From the total 26 commercial banks, 18 are foreign-based lenders.

There were calls for a consolidation in the banking sector, as the country is deemed to have too many lenders that lead to banks’ margins being squeezed and tepid profits.

Local lenders have been able to hold their grounds, but not all foreign banks are gaining similar successes.

Among the top performing foreign banks in terms of profit is HSBC Bank Malaysia Bhd (HSBC Malaysia). For the first half of 2019 (1H19), the Malaysian operation of the world’s seventh-largest banking group, with US$2.7 trillion in assets, posted a net profit of RM534.59 million.

The group’s asset size rose to RM84.23 billion for the period versus RM80.73 billion for the same period last year.

Citibank Bhd has also been successful in Malaysia. The US-based bank recorded a net profit of RM436.51 million during the first six months of this year compared to RM391.11 million in 1H18, based on the lender’s financial filings. Its asset size stood at RM38.57 billion at the end of June 2019.

But some foreign banks are posting lower profits. Bangkok Bank Bhd saw a decline in its profit for the 1H19.

Based on its unaudited financial statement for the financial year ended June 30, 2019 (FY19), the group posted a net profit of RM921,000 — a decline from RM6.49 million it registered in the same period last year. The group’s total assets stood at RM4.98 billion.

For the second quarter of 2019 (2Q19), the group posted a net loss of RM6.74 million versus a net loss of RM1.16 million in 2Q18. Bangkok Bank plc opened its Kuala Lumpur branch on Jan 23, 1959.

Al Rajhi Banking & Investment Corp (M) Bhd (Al Rajhi Malaysia) also saw a decline in its net profit for the first six months of the year.

It recorded a net profit of RM7.15 million for 1H19 against RM12.64 million for 1H18. Its net profit for 2Q19 was RM4.89 million compared to RM4.21 million recorded in the same period last year. The group’s total assets stood at RM1.89 billion as at the end of June this year.

Al Rajhi Malaysia and Malaysian Industrial Development Finance Bhd (MIDF) are already in discussion for a possible merger, and the decision is expected to be announced before the end of the year.

Both parties have submitted a proposal to Bank Negara Malaysia before the Sept 27 deadline, despite key issues like shareholding and branding of the new bank after the merger.

The smaller foreign banks are also struggling to make Malaysia a key market. However, India International Bank (M) Bhd (IIBM), China Construction Bank (M) Bhd (CCBM) and The Bank of Nova Scotia Bhd are among the foreign banks that posted higher profits.

Based on its unaudited financial statement, IIBM registered a profit of RM1.74 million in 1H19, higher than RM258,000 recorded in 1H18.

It registered a higher profit in 2Q19 at RM815,000 compared to RM129,000 in 2Q18. Its assets were RM551.21 million as at June 30, 2019.

IIBM is a locally incorporated joint venture (JV) between three of India’s largest government-owned financial institution namely Bank of Baroda with 40%, Indian Overseas Bank (35%) and Andhra Bank (25%).

Al Rajhi Malaysia is already in discussion for a possible merger with MIDF (pic by BERNAMA)

The JV bank commenced its commercial banking business on July 11, 2012. Meanwhile, The Bank of Nova Scotia Bhd registered a profit of RM9.53 million for the first six months ended April 30, 2019 versus RM6.39 million in the same period last year.

It recorded a profit of RM5.6 million in the 2Q ended April 30, 2019, compared to a lower profit of RM1.69 million last year.

Total assets of the group and the bank increased by RM254.9 million to RM1.89 billion compared to its FY18.

The increase was mainly contributed by growth in loans and advances of RM233 million, as well as holding of cash and short-term funds of RM30.2 million.

CCBM registered a net profit of RM10.17 million in 1H19, which is an increase from RM1.25 million in 1H18.

Its net profit in 2Q19 stood at RM4.9 mi l l ion against RM347,000 in the same period last year.

According to its unaudited financial statement, its total assets stood at RM4.18 billion with stable execution progress.

The bank’s global economic outlook for the year is expected to soften along with the slowdown of major economies.

The report stated that Malaysia’s economy is estimated to remain positive on a steady growth path, driven mainly by domestic demand and accommodative policies to stimulate growth through stable labour market conditions, capital spending and technology.