Top 8 biggest local banks lost RM36b in market cap over 6 months

Over past 52 weeks, the Bursa Malaysia Finance Index has plunged 18.2%, while FBM KLCI fell 3.7%

by ASILA JALIL/ pic by TMR FILE

MALAYSIA’S eight largest commercial banks lost a total of RM36.43 billion in market value over the last six months, hammered by an increasingly gloomy economic outlook due to the Covid-19 pandemic.

Investors have been dumping shares in lenders as their margins and earnings are expected to take a hit from lower interest rates, while bad debts will rise as consumers struggle amid pandemic-induced financial woes.

CIMB Group Holdings Bhd, the second-largest lender by assets, lost the most at RM14.97 billion as its market capitalisation fell 29.1% to RM36.42 billion as of last Wednesday (July 15) from RM51.39 billion on Jan 15.

The country’s largest bank, Malayan Banking Bhd, was also not spared as its value dropped 8% or RM7.74 billion to RM88.92 billion from RM96.66 billion earlier this year.

Public Bank Bhd — the second-largest player by market cap — slipped 4.8% or RM3.68 billion over the six-month period. It was valued at RM72.21 billion on July 15 from RM75.89 billion in January.

Hong Leong Bank Bhd saw RM3.68 billion wiped from its market cap, which stood at RM32.91 billion last Wednesday — down 10.1% from RM36.59 billion six months ago. RHB Bank Bhd lost 12.9% or RM3.01 billion, bringing its value to RM20.29 billion from RM23.3 billion.

AMMB Holdings Bhd declined 18.2% or RM2.14 billion to RM9.63 billion against RM11.77 billion recorded six months prior, while Affin Bank Bhd registered a decline of 16.4% or RM620 million to RM3.16 billion from RM3.78 billion.

Alliance Bank Malaysia Bhd slipped 14.8% or RM590 million in market cap, leaving it with a market value of RM3.41 billion compared to RM4 billion in January.

Over the past 52 weeks, the Bursa Malaysia Finance Index, which measures 31 locally-listed finance firms, has plunged 18.2%, while the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) fell 3.73%.

Its members have a total market cap of RM322.7 billion, more than one-third of the FBM KLCI’s overall RM1.03 trillion.

As banks’ performances are usually tied to economic growth, the increasingly depressing state of the economy — domestic and global — weighs heavily on the outlook for lenders.

“The impact on banks will be indirect and tied to the economic front. Should the recovery stall, it will impact banks negatively,” MIDF Amanah Investment Bank Bhd senior analyst Imran Yassin Mohd Yusof told The Malaysian Reserve.

The duration for the pullback in banking stocks is undetermined as investor sentiment is largely unpredictable currently, he added.

“However, should the economy rebound faster than expected, it will be positive for banks as it would mean more demand for loans, and non-performing loans (NPLs) could be kept at a manageable level.”

He said at the current juncture, the most prudent action to be taken by banks is to ensure stable asset quality and optimise balance sheets in order to take advantage of the eventual economic recovery.

Bank Negara Malaysia recently cut the Overnight Policy Rate (OPR) for the fourth time this year by 25 basis points (bps), bringing the rate to a record low of 1.75% amid the virus outbreak.

The central bank has slashed the benchmark lending rate by 125bps since January this year as concerns rise over the country’s economic state.

Every 25bps reduction in the OPR is expected to impact most banks’ net interest margin (NIM) by 2bps to 4bps, while their net profit will shrink by 1% to 3%, AmBank Research said recently. It sees banking sector’s NIM compressing by 13bps on average this year.

Outstanding gross impaired loans across the banking industry rose 6.5% year-on-year to RM27.86 billion in February 2020, Affin Hwang Investment Bank Bhd said in April. For the January to April 2 period, total impaired loans climbed 4%.

“We advise investors to exercise caution, due to the heightened risk of unemployment and potential business closures, which will continue to drive up system NPLs,” it wrote in a separate note dated June 18.

Malaysia also recorded its lowest GDP growth in 10 years at 0.7% in the first quarter of 2020, due to the pandemic containment measures.

Given that Malaysia’s GDP hinges largely on private consumption, a decline in overall expenditure as households conserve cash does not bode well for banks unless consumers opt for loans to stay afloat, though this also raises the question of their ability to repay debts.