KUALA LUMPUR (June 6): Malaysia Building Society Bhd (KL:MBSB) aims to increase its share of cheap funds and release some high-cost deposits to boost profits at the country’s second-largest standalone Islamic bank by assets.

Under the Flight26 plan, MBSB, the holding company of MBSB Bank Bhd, is seeking to raise the proportion of current-account-saving-account (CASA) to 20% from just 7% in 2023. CASA typically carries little-to-no interest, which is lower in cost of funds for banks than that of fixed deposits (FD).

“Flight26is all about bringing CASA up, rebalancing the FD portfolio, and releasing some of the high-cost institutional deposits,” said group chief executive officer Rafe Haneef. “We are quite healthy in terms of growth in financing, and we need to make sure that growth is giving us the right profit margin.”

Banks in Malaysia have been grappling with pressure on their net interest margin — a measure of profitability from interests charged on loans after deducting returns paid to depositors — amid intense competition for deposits in a market with three dozen foreign and local lenders.

Lenders also have to maintain comfortable levels of deposits and other buffers to support loan growth in an economy expected to accelerate this year.

While competitors are also eyeing to expand the CASA portion in their deposits, Rafe said MBSB is not looking to grab major market share from the industry that averages 33%. The company is also guiding for a net profit margin (NPM) of 2% for 2024 through 2026.

“If we can get 2% NPM with a 7% CASA ratio, can you imagine how much NPM can be improved here,” Rafe told reporters after the MBSB’s annual general meeting.

MBSB’s 7% CASA ratio was achieved without the bank actively competing for it, chief financial officer Shahnaz Farouque Jammal said at the same press conference.

“We did not really look at, or have been deliberately and systematically going out to look for CASA,” Shahnaz said. “So now, if we really activate physically and deliberately search for CASA in various means, just getting that bump up to a below-industry-average percentage is not going to be a big issue.”

The target is “within reach and very reasonable,” Shahnaz said, “but it has quite a powerful impact.”

Improved asset quality, RM250m recovery expected for FY2024

In terms of asset quality, Rafe expects gross impaired financing ratio — debts deemed unrecoverable as a percentage of total loans — to improve from 7.1% last year to 4%-5% this year and to stay at 4% in 2026.

A “large” chunk of the bad loans is fully collateralised, and “these are legacies, because as a development bank we had in the past development objectives and we have gone into various construction projects that have not led to the expected results and we then have to provide for it,” Rafe noted.

MBSB would rely on collaterals rather than provisioning, Rafe said, and “where there is partial collateral, we have provided partial provisioning and when there is no collateral, full provisioning has been provided.”

Some of the accounts are under litigation and MBSB expects to recover about RM250 million this year, Rafe said. “Once we get the final judgment, we should be able to foreclose on it,” he said, adding that “hopefully the market is healthy to find a buyer for the assets,” he added.