Banks’ dividend payout ratio to drop up to 35%


LOCAL banks’ impaired loans are expected to grow after the six-month loan moratorium ends in September which could lead to a possible drop in dividend payout ratio this year.

Fortress Capital Asset Management (M) Sdn Bhd investment advisor and director Geoffrey Ng said non-performing loans may be between 3.5% and 4% by the first quarter of 2021 (1Q21) due to longer recovery period expected from certain key drivers of the economy such as tourism, hospitality and retail services.

He estimated for the dividend payout ratio of banks to reduce up to 35% this year.

“Although Malaysian banks in general have healthy balance sheets and well capitalised, they will continue to be prudent and reduce overall dividend payout ratio for this fiscal year.

“We estimate payout ratios may drop to about 30% to 35%,” he told The Malaysian Reserve yesterday.

A lower dividend payout ratio is also expected as banks will be more cautious to conserve capital, said Hong Leong Investment Bank Bhd research analyst Chan Jit Hoong.

Chan estimates that the sector’s gross impaired loans ratio to increase by 25 basis points this year due to a more challenging outlook, but the figure depends on the rate of economic recovery from the Covid-19 pandemic.

“I am also projecting an earnings decline of 22% this year for now, followed by a recovery of 13% next year,” he said.

Several banks have posted a lower net profit in their latest financial results.

Alliance Bank Malaysia Bhd’s net profit dropped 12.27% year-on-year (YoY) to RM98.06 million in its 4Q ended March 31, 2020 (4QFY20), due to higher allowance for expected credit losses on loans, advances and financing and other financial assets of RM98.29 million compared to RM39.92 million in the same period last year.

For the full year, its net profit dropped 21.08% YoY to RM424.26 million.

The bank did not recommend a second interim dividend as it is prioritising capital conservation due to the pandemic. Its total dividend for FY20 is 6% per share with a payout ratio of 21.9%.

AmBank (M) Bhd’s earnings fell 46.1% YoY to RM247.54 million in its 4QFY20 due to a RM194.85 million loan impairment allowance.

For the full FY20, the bank’s net profit dropped 10.9% YoY to RM1.34 billion due to higher net provisions. The group declared a final dividend of 7.3 sen.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the impaired loan ratio is expected to rise this year following the expectation of a GDP contraction.

He, however, does not expect to see a spike in impaired loans as the banks have the option for restructuring and rescheduling and qualified borrowers can always seek assistance from Credit Counselling and Debt Management Agency in terms of advice and to mediate between banks and borrowers.

“In that sense, the risks of sharp increase in impairment ratio are fairly manageable,” he said.