KUALA LUMPUR (Aug 25): Malayan Banking Bhd (Maybank) posted a marginally lower net profit of RM1.86 billion for the second quarter ended June 30, 2022 (2QFY22), compared with RM1.96 billion a year ago.

Investment analysts have drawn their attention to the unexpected nearly 60% increase in loan loss provision to RM837.55 million in 2QFY22, compared with RM524.7 million a year ago. Some take it as Maybank being prudent on loan loss provision to safeguard its asset quality, while others see that as a sign of heightening risk on loans turning sour.

Nonetheless, its newly-appointed group president and chief executive officer Datuk Khairussaleh Ramli told the media on Thursday (Aug 25) that the sharp rise in allowances for impairment losses on loans could just be a "one-off event".

Khairussaleh explained that the spike in loan loss provision is a pre-emptive measure in anticipation of weaker external environment in the second half of the year.

“This is a pre-emptive provision, and it is supposed to be one-off, particularly affecting segments of oil and gas, as well as hospitality,” said Khairussaleh in his first media briefing on quarterly results since returning to Maybank in May.

Khairussaleh, who took over the helm from Datuk Seri Abdul Farid Alias, stressed that the country's largest lender is keeping a prudent stance on asset quality.

The increase in impairment losses on loans was higher than analysts’ expectations, as most of them generally held the view that Maybank already made sufficient provision in the past.

This raises the question whether its peers will have a similar pattern in the second quarter or the coming quarters, given the uncertainties on the horizon, ranging from interest rate hikes, mounting inflationary pressure, to recession fears and geopolitical tension.

Analysts contacted commented that other banks might not have the same pattern on a substantial increase in loan loss provision, as some do not have large exposure to the oil & gas industry and hospitality business.

"Banks are remaining prudent for now. They still have huge macro overlays built up over more than two years in the past... something that they have yet to dip into. Given that the earnings cycle remains relatively strong due to margin expansions, they probably believe it may be a good time to take additional provisions," said a banking analyst.

Commenting on Maybank's latest quarterly earnings, the analyst noted that the incidences of newly impaired loans are indeed trending lower, while recoveries are improving. "In the grander scheme of things, operating conditions may be increasingly challenging, (but) asset quality issues remain largely under control.. with exception of a few specific cases," he added.

Meanwhile, MIDF Research banking analyst Samuel Woo Choong Yi pointed out that most banks have already warned for additional macroeconomic provisioning on the back of worsening outlook since 1Q22, so the increase in Maybank's loan loss provision doesn't really come as a surprise.

"In fact, several banks had very low credit costs in 1Q22 compared to their full year guidance, so most analysts should have already pre-empted it. Most banks are cautious of the effect of higher interest rates on asset quality and loan demand," said Woo.

Maybank's latest quarterly results came below his expectations, but he noted that his forecasts were on the higher side, banking mostly on stronger-than-expected non-interest income.

Loan growth to slow down

Maybank’s CEO Khairussaleh foresees the bank’s loan growth to slow down due to higher interest rates.

However, he commented that the anticipated hikes in overnight policy rate (OPR) will help widen the bank’s net interest margin (NIM).

Khairussaleh is confident that the banking group will be able to hit its 4.9% loan growth target.

“Generally, we may see some slowdown in loan growth, given the higher interest rate, but we don’t think the impact is material,” he said.

Maybank recorded a loan growth of 5.6% in 2QFY22, on strong pick-up in credit card financing and robust working capital loan application.

Commenting on NIM, Khairussaleh said the margin is expected to widen due to a projected OPR hike of an additional 50 basis points (bps) for the rest of 2022, and a 25bps hike in 2023.

The group's NIM expanded to 2.41% for 2QFY22, up from 2.37% in 2QFY21 and 2.34% in the preceding quarter. For 1HFY22, the NIM rose to 2.38% from 2.32% a year ago, and 2.1% in 2020.

Bank Negara has raised its OPR by 50bps so far this year to 2.25%, after the central bank cut its OPR to a historical low of 1.75% due to the Covid-19 pandemic.

Interim dividend of 28 sen

Maybank declared its first interim dividend of 28 sen per share for the financial year ending Dec 31, to be paid no later than three months. It is to be accompanied by an applicable dividend reinvestment plan ― whereby seven sen can be elected to be reinvested in new shares.

The banking giant’s net interest income grew 16.5% to RM3.52 billion in 2QFY22, against RM3.01 billion a year ago. This helped lift its net operating income to RM6.83 billion, compared with RM6.17 billion.

Notably, Maybank’s other operating income shrunk substantially to RM366.9 million in the quarter under review compared with RM1.15 billion a year ago, as a result of unrealised mark-to-market loss of RM781 million. It was a mark-to-market gain of RM990.9 million a year ago.

Meanwhile, the allowances for impairment losses on financial investments surged to RM320.8 million in the quarter under review, compared with RM43.99 million previously.

However, the income contraction was cushioned by the sharp drop in net insurance benefits and claims incurred, which halved to RM1.086 billion in 2QFY22 from RM2.12 billion.

Earnings per share fell to 15.52 sen from 17.05 sen, its bourse filing showed.

For the six-month period ended June 30, Maybank’s net profit fell 10.39% to RM3.9 billion from RM4.35 billion.