by AMIR AIMAN / pic by MUHD AMIN NAHARUL 

MALAYAN Banking Bhd’s (Maybank) Indonesian banking business reported a staggering four-fold increase in its quarter-on-quarter (QoQ) earnings haul of 536 billion rupiah (RM155.9 million) for the third quarter of 2021 (3Q21) with stronger total income and lower loan loss provision.

Hong Leong Investment Bank Bhd (HLIB) analyst Chan Jit Hoong noted that the 79% owned subsidiary of Maybank reported an 86% increase in earnings year-on-year (YoY) for the nine months of 2021 to 1.06 trillion rupiah.

For QoQ, positive jaws from stronger total income growth (9%) coupled with lower loan loss provision (48%) led to the fourfold spike in net profit.

Net interest margin (NIM) expanded 33 basis point (bp) while non-interest income (NOII) increased 5% on the back of a 28% rise in fees while operating expenses (opex) decline by 1%, Chan stated.

“For YoY, similarly, earnings jumped 86%, thanks to positive jaws as its total income rose six percentage point (ppt) quicker than opex and lower allowance for bad loans (38%). During the quarter, NIM widened 11bp, but NOII fell 4% given weaker foreign exchange and mark-to-market gains at 49% and 63%, respectively,” he wrote in a report yesterday.

Chan added that year-to-date, Maybank Indonesia’s bottom line shows a decrease of 3% dragged by negative jaws as total income dropped 7% with the combination of loans shrinkage and tepid NOII nevertheless, lower impaired loans provision (26%) absorbed some of the revenue bruise.

The Indonesian business saw weak growth in its net loans with 11.8% YoY and on 2Q21 at 16.6% and deposits at 12.6% YoY (2Q21: 1.6%)

The sequential net loan-to-deposit ratio climbed five ppt to 95%. For asset quality, the gross non-performing loan (NPL) ratio increased 22bp QoQ to 4.6%, mainly due to the trading, restaurant and hotel segment.

HLIB expects NIM to hold steady at current levels since Bank Indonesia seems to have paused its monetary easing cycle, instead preferring to lean on other policies to lift domestic credit in terms of demand loosening down-payment rules, loan de-risking and re-profiling activities will likely prevent its NIM from widening.

“We see recovery in the next six to nine months. Separately, loan restructuring efforts will help to limit a significant deterioration in the NPL ratio through Otoritas Jasa Keuangan, a government agency that regulates and supervises the financial services sector in Indonesia, that has prolonged the loan restructuring programme until March 2023 to support troubled borrowers.

HLIB maintained its ‘Buy’ call on Maybank with a target price of RM9.40 based on 1.22 times of financial year 2022 price-to-book with assumptions of 9.4% Return on Equity, 8.2% Cost of Equity, and 3% Long-Term Growth.

This is broadly in line with its five-year mean of 1.19 times but ahead of the sector’s 0.87 times.

“The premium is warranted considering its regional exposure and leadership position. Also, it offers a superior dividend yield of circa 7%, a three ppt higher compare with its peers, and because it is one of the least affected banks by the ‘Cukai Makmur’ and its lower foreign shareholding versus larger banks makes it less susceptible to sell-off,” the HLIB report noted.