Malayan Banking Berhad MAYBANK FYE22Q3
Above par earnings, but mediocre profitability and relatively high-risk loan portfolio
Last Updated: 25 Nov 2022; Analysis is based on FYE21 results and FYE22Q3 interim results.
❗Read me first❗
- At the time of writing this page, I owned shares of MAYBANK.
- I do my best to write this analysis as objective as possible. No point I lie to myself, and, no offence, I don’t need you to push up the stock prices.
- Fair value estimates and earnings projection are not included here, so you won’t perceive buy/sell recommendation.
- I agree to disagree, I welcome tactful discussion and I respect your view (no matter what). Market moves because of different perspectives.
- Click to learn how to analyse performance of a commercial bank.
Click to view filing of the FYE2021 Annual Report in Bursa Announcement, FYE21Q4 Investor Presentation, FYE22Q3 interim results and FYE22 Q3 Investor Presentation.
MAYBANK F.A.C.E. Analysis
Ample funds to increase lending, but higher stable funding is needed
- Funding and liquidity of MAYBANK is at healthy level. Compared to peers, MAYBANK’s Loans/Customer Deposits (%) indicated that MAYBANK still have room to utilise customer deposits to increase lending. The bank still has room to grow.
- Nevertheless, among the banks, portion of customer deposits in MAYBANK’s funding is the lowest one. The ratio has been increasing gradually from FYE17:78.5% to FYE21:80.8%. Other major funding sources of MAYBANK are money market funding and debt funding.
Healthy, but relatively high-risk loan portfolio
- Degree of impaired loans improved from FYE17: 2.34% to FYE21: 1.99%. Plus, its loan impairment charges over gross loans decreased from FYE17: 0.54% to FYE21: 0.21%.
- Gross loans grew +5.7% YoY (FYE20: MYR523.7m; FYE21: MYR533.8m), and grew 12% since 2017 (FYE17: MYR493.8m; FYE21: MYR553.8m).
- High loan loss coverage FYE21: 107.8% indicates MAYBANK has adequate reserves in relation to the impaired loans in the loan portfolio.
- Ratios wise, MAYBANK’s loan portfolio is healthy and improving. However, if compared to peers (especially PBBANK and HLBANK), MAYBANK still has big gap to catch up.
- Impaired Loans / Gross Loans of MAYBANK is the 3rd highest among the peers.
- Loan Loss Coverage of MAYBANK is the 3rd lowest among the peers.
- Loan impairment charges / Avg. gross loans of MAYBANK is the 3rd lowest among the peers.
- This aligns with concerns on the bank’s exposure to relatively sizeable corporate loan accounts (Working Capital Loans) within the oil & gas (O&G) and cruise industries (Genting Hong Kong) that are currently facing varying degrees of financial constraints. Besides, MAYBANK has high impaired loans in construction projects (Annual Report 2022 Page 79).
Above average Tangible Common Equity over RWA, and CET 1 Capital Ratio above Basel III requirements
- Highest Tangible Common Equity over RWA among peers indicates MAYBANK has sufficient capital to cover asset risks.
- CET 1 Capital Ratio is above Basel III requirements.
Above par earnings, but mediocre profitability
Earnings
- Among the banks, in the past 5 years, MAYBANK recurring earnings power ratio (Operating profit / RWA) is the highest (FYE17: 3.18% ➡️ FYE21: 3.44%). MAYBANK successfully grew its recurring earnings power ratio 3.3% every year.
- MAYBANK also recorded above industry average Net Interest Margin every year.
Profitability
- While MAYBANK’s has been enjoying impressive earnings, its operational excellence can be better. Its Cost / Income has been declining from FYE17: 48.6% to FYE21: 45.3%, but if compared to peers, the Cost / Income is still at the upside.
- Another aspect that ate up the profit of MAYBANK is total impairment charges from loans and securities. Its “Loans & Securities Impairment Charges / Pre-Impairment Operating Profit” increased from FYE17: 17.02% to FYE21: 23.18%. Quality of loan portfolio of PBBANK, RHBBANK and HLBANK is higher than MAYBANK.
This aligns with concerns on the bank’s exposure to relatively sizeable corporate loan accounts (Working Capital Loans) within the oil & gas (O&G) and cruise industries (Genting Hong Kong) that are currently facing varying degrees of financial constraints. Besides, MAYBANK has high impaired loans in construction projects (Annual Report 2022 Page 79).
- Lower profitability is reflected in declining Return on Average Equity – FYE17: 10.9% ➡️ FYE21: 9.8%. 9.8% ROE is much lower than PBBANK (12.4%), BIMB (11.1%) and HLBANK (10.1%) where these banks are more prudent and conservative in loan portfolio.
Segmental Information
| Business Segments (MYR in thousand) | 2019 | 2020 | 2021 |
|---|---|---|---|
| Community Financial Services | 6,464,696 | 3,667,017 | 5,752,823 |
| Corporate Banking Global Markets | 3,959,352 | 3,798,647 | 3,887,247 |
| Investment Banking | 79,176 | 503,881 | 535,247 |
| Asset Management | 11,892 | 33,711 | -46,455 |
| Insurance and Takaful | 936,824 | 996,053 | 931,957 |
| Head Office and Others | -596,433 | -551,500 | -360,407 |
| Total | 10,855,507 | 8,447,809 | 10,700,412 |
Gross loans, advances and financing by economic purpose
| Economic Purpose (MYR in thousand) | 2019 | 2020 | 2021 |
|---|---|---|---|
| Purchase of securities | 35,999,387 | 36,337,689 | 38,584,740 |
| Purchase of transport vehicles | 68,239,626 | 68,521,829 | 68,721,416 |
| Purchase of landed properties - Residential | 122,875,200 | 134,192,016 | 149,867,083 |
| Purchase of landed properties - Non-residential | 40,553,322 | 40,258,823 | 39,236,803 |
| Purchase of fixed assets | 4,163,699 | 3,522,105 | 3,425,397 |
| Personal use | 10,889,877 | 11,533,431 | 9,426,126 |
| Credit card | 9,745,404 | 8,701,661 | 8,987,387 |
| Purchase of consumer durables | 9,893 | 9,715 | 6,031 |
| Constructions | 17,381,155 | 16,482,318 | 17,481,085 |
| Mergers and acquisitions | 1,676,999 | 1,467,097 | 1,679,119 |
| Working capital | 168,019,588 | 163,786,319 | 179,145,946 |
| Others | 43,933,328 | 38,910,573 | 37,227,429 |
| Total | 523,487,478 | 523,723,576 | 553,788,562 |
Impaired loans, advances and financing by economic purpose
| Economic Purpose (MYR in thousand) | 2019 | 2020 | 2021 |
|---|---|---|---|
| Purchase of securities | 35,999,387 | 36,337,689 | 38,584,740 |
| Purchase of transport vehicles | 68,239,626 | 68,521,829 | 68,721,416 |
| Purchase of landed properties - Residential | 122,875,200 | 134,192,016 | 149,867,083 |
| Purchase of landed properties - Non-residential | 40,553,322 | 40,258,823 | 39,236,803 |
| Purchase of fixed assets | 4,163,699 | 3,522,105 | 3,425,397 |
| Personal use | 10,889,877 | 11,533,431 | 9,426,126 |
| Credit card | 9,745,404 | 8,701,661 | 8,987,387 |
| Purchase of consumer durables | 9,893 | 9,715 | 6,031 |
| Constructions | 17,381,155 | 16,482,318 | 17,481,085 |
| Mergers and acquisitions | 1,676,999 | 1,467,097 | 1,679,119 |
| Working capital | 168,019,588 | 163,786,319 | 179,145,946 |
| Others | 43,933,328 | 38,910,573 | 37,227,429 |
| Total | 523,487,478 | 523,723,576 | 553,788,562 |
Interim Results of MAYBANK 30 Sep 2022 (FYE22 Q3)
MAYBANK recorded better earnings if compared to the same period reviewed in previous year. MAYBANK’s investor presentation already provided good coverage, so I can save my time in writing. 😁 We should focus attention on the allowances for impairment losses. Is there any positive sign?
A28 – Allowances for impairment losses on loans, advances, financing and other debts, net
- Around -47% QoQ – FYE22Q3: MYR (599.6m) vs FYE21Q3: MYR (1,126.2m)
- Another positive sign is around -25% YoY – FYE22-9M: MYR (1,880.5m) vs FYE21-9M: MYR (2,501.2m). Changes are MAYBANK will record lower allowances in FYE2022.
- What caused the improvement?
- I think that MAYBANK moved Stage 2 allowances to Stage 1 under IFRS 9 Stages in Different Economic Cycles because MAYBANK expects Upturn for subsequent reporting period and Benign for originated reporting period.
- There was significant bad debts and financing recovered: FYE22Q3: MYR (139.4m) vs FYE22Q2: MYR (90.3m). This indicates that companies and individuals repaid their loans due to economy recovery after MCO.
A29 – Allowances for impairment losses on financial investments, net
The allowances for impairment losses on financial investments surged to FYE22Q3: MYR (245.8m) vs FYE21Q3: MYR (6.9m). Refer to the footnote A29, Stage 3 – Lifetime ECL credit impaired was FYE2022-9M: MYR 396.8m. I couldn’t find more information in the report that relate to this. The below table gives us context of the severity.
| MYR in millions | FY21 Q3 | FY21 Q4 | FY22 Q1 | FY22 Q2 | FY22 Q3 |
|---|---|---|---|---|---|
| Stage 3 – Lifetime ECL credit impaired | 13.1 | 930.5 | 127.5 | 320.3 | 253.8 |
I hope MAYBANK will continue increasing portion of customer deposits in MAYBANK’s funding and reducing money market funding and debt funding.
A30 – Writeback of/(allowances for) impairment losses on other financial assets, net
There was some writeback of Allowances of impartment losses on other financial assets. The cumulative FYE22-9M allowances of other assets was MYR 19.7m. The puzzling part is Stage 3 – Lifetime ECL credit impaired of Other Assets. I have no idea what the Other Assets are here.
Summary
I estimate MAYBANK will end 2022 fiscal year stronger than 2021 fiscal year, but its profitability is significantly reduced by higher net impairment losses in FYE2022Q1 and FYE2022Q2.
MAYBANK’s capability in generating earnings is strong, but MAYBANK is known to be less resilient to economic downturn. Over the years, MAYBANK has been making some improvement to its loan and investment portfolios. However, if compared to PBBANK and HLBANK, net impairment losses of MAYBANK always higher. MAYBANK should apply more prudent way in approving loans and making financial investments at the first place.
Corporate Development
- 25 Aug 2022 – Maybank 2Q net profit down 5.4% despite higher net interest income, declares 28 sen dividend. (The Edge Markets)
- 10 Jul 2022 – Maybank to adopt new way of calculating savings account interest rates (The Edge Markets)
Stock Analysis
Thong Guan Industries Berhad TGUAN FYE22Q3
Public Bank Berhad PBBANK FYE22Q3
Power Root Berhad PWROOT FYE23Q2
Malayan Banking Berhad MAYBANK FYE22Q3
Collection of Guides
[pt_view id=”bcd3b2cq2d”]
Thanks for sharing