Credit cost may weigh down AmBank’s 2H earnings, says group CEO

The banking group expects its net profit for the next 6 months to be weighed down by additional credit cost


AMMB Holdings Bhd (AmBank) forecast a loan growth of 5% for the financial year 2021 (FY21) after reporting a 3.1% rise in group gross loans and financing year-to-date (YTD) to RM110.6 billion, driven by growth in retail banking and business banking.

The banking group expects its net profit for the next six months (FY21 ending March 31) to be weighed down by additional credit cost.

Group CEO Datuk Sulaiman Mohd Tahir said the group is “very mindful” of its net profit for the second half (2H) of the financial year as the blanket loan moratorium by the government ended on Sept 30, 2020.

Sulaiman forecast for the bank’s loan growth for FY21 to hover around 5% or higher, which is slightly higher than the industry’s loan growth of between 4% and 5%.

“We are still forecasting it (loan growth) to be around 5%, slightly higher than the industry,” he said in a press briefing for the bank’s second-quarter (2Q) results yesterday.

The group’s net profit slid 25.7% year-on-year (YoY) to RM237.32 million in its 2Q ended Sept 30, 2020 (2QFY21), from RM319.57 million in the same period last year.

Revenue for the quarter declined 9% YoY to RM2.14 billion. For the cumulative quarters, AmBank’s net profit declined 15.3% YoY to RM602.48 million from RM711.03 million in the corresponding period last year.

It generated a lower revenue by 8.2% to RM4.35 billion in the period compared to RM4.74 billion last year.

The group’s fund-based income from interest-bearing assets decreased mainly from interest on fixed-income securities and on loans, financing and advances.

The group has set aside RM205 million in the 2Q to strengthen provision coverage, bringing its total allowances to RM1.74 billion in its balance sheet.

“All in all, we have provided RM382 million in terms of potential default if we were to look at the portfolio that we have that has gone under the blanket loan moratorium.

“That pushed our return on equity down to 6.3% because of the provision we have provided,” said Sulaiman.

The additional RM214.8 million in macro provisions was charged during the half year, took the total preemptive macro provisions to RM382.1 million, of which RM167.3 million was taken in the previous financial year.

The provisions were made in relation to AmBank’s exposures to retail and small and medium enterprises (SMEs) customers that are affected by Covid-19, as well as the aviation and the oil and gas sectors.

Its gross impaired loans ratio stood at 1.57% for its half-year period compared to 1.73% last year with loan loss coverage improving to 99.9%.

The group’s gross loans and financing rose 3.1% in the six months to RM110.6 billion driven by growth in retail banking and business banking.

Mortgages grew RM1.6 billion to RM38.1 billion and loans to SME customers increased by RM1.7 billion to RM22.5 billion, while wholesale banking loans dropped RM653.1 million from lower corporate utilisation.

Sulaiman said deposits from customers increased 1.6% YTD to RM114.8 billion with current account and savings account (CASA) being the biggest contribution.

“CASA grew at a rate of 18% from the closing of last year. We see a small reduction post moratorium by virtue of some of this cash sitting in CASA being used to pay down some of trade finance and some of the term loan instalment due, post the moratorium,” he said.

For its 1HFY21, the group’s net modification loss stood at RM35 million.

In a statement, Sulaiman said the global crisis had led the group to progress towards the new normal under its refreshed Focus 8 strategy, which is premised on building the bank’s digital capabilities and driving efficiency through automation.

“To this end, we will be rolling out our digital onboarding and e-KYC initiatives by the end of 2020, while developing collaborations with cross-industry partners.

“We will continue to invest in growth opportunities and remain steadfast in protecting the long-term interests of our stakeholders by maintaining a sound balance sheet,” he said in a statement yesterday.