This article first appeared in The Edge Financial Daily on November 30, 2018

KUALA LUMPUR: There were no negative surprises in the latest quarterly and cumulative earnings for the period ended Sept 30, 2018 for banks listed on Bursa Malaysia, say analysts.

In general, banks’ earnings have been supported by lower year-on-year (y-o-y) impairments, said an analyst with Kenanga Investment Bank, while loans growth largely came in within expectations.

“Although there was the implementation of the Malaysian Financial Reporting Standard 9: Financial Instruments from Jan 1, 2018, credit costs were not as high as expected,” he told The Edge Financial Daily.

Two of the country’s largest banks by assets — Malayan Banking Bhd (Maybank) and CIMB Group Holdings Bhd — released their financial results yesterday. Maybank reported a 3.5% y-o-y drop in net profit for its third quarter ended Sept 30 (3QFY18) to RM1.96 billion, while CIMB’s net profit climbed 4.2% y-o-y to RM1.18 billion (see summary).

MIDF Research senior analyst Imran Yassin is of the opinion that both banks’ performances were within expectations.

“Maybank’s 3QFY18 results were lower because of weakness in non-interest income due to lower investment income. While we had anticipated a higher non-interest income, Islamic banking income had compensated for this.

“CIMB’s earnings growth in 3QFY18, meanwhile, was driven by lower provisions and operating expenses. Similarly, its Islamic banking income came in strongly to moderate the weakness in non-interest income,” he told the daily.

By and large, Imran, who noted that only RHB Bank Bhd nearly beat his research firm’s expectation, is also of the view that there are no negative surprises from the local banking sector so far. “We believe this bodes well for the sector in 2019 as there were no negative surprises.”

Earnings growth momentum could be maintained in 2019, he said, “on the premise that loans growth will likely [be] robust albeit at a slightly moderate pace, [while] asset quality remains strong”. While he noted some net interest margin compression, he thinks this will moderate given that Bank Negara Malaysia has extended the observation period for the net stable funding ratio to 2020.

To Maybank, the prolonged geopolitical situation remains a key concern, according to its group president and chief executive officer (CEO) Datuk Abdul Farid Alias, as it would influence global growth, including Asia, where most of Maybank’s operations are based.

“However, we believe our solid franchise in the region as well as our strong fundamentals can help buffer us from much of the uncertainties that could arise in the future. We will remain agile to adjust to rapid market changes, while at the same time look for opportunities for growth, such as infrastructure financing, wealth management, digital banking and Islamic banking.

“We will ensure that we grow responsibly, as well as maintain strict discipline in pricing and managing costs,” he said.

The country’s smallest bank by assets, Alliance Bank Malaysia Bhd, also released its financial results yesterday. Below is a summary of the three banks’ earnings:

Maybank

Maybank reported a 3.5% y-o-y drop in net profit in 3QFY18 to RM1.96 billion from RM2.03 billion, as net operating income fell as a result of continued global market volatilities which dampened economic growth and demand in key segments.

Though revenue rose to RM12.06 billion in 3QFY18 from RM11.59 billion in 3QFY17, net operating income retreated 3.3% y-o-y to RM5.69 billion from RM5.89 billion due to a dip in fee-based income, owing mainly to lower investment and trading proceeds, as well as foreign exchange fluctuations.

Notwithstanding this, operating profit for 3QFY18 was higher at RM2.61 billion versus 3QFY17’s RM2.6 billion, as overhead expenses declined 6.2% y-o-y, and impairment losses fell 5.5% y-o-y.

For nine months of financial year 2018 (9MFY18), Maybank’s net profit climbed to RM5.79 billion from RM5.39 billion a year earlier. Revenue was also higher at RM35.09 billion compared with RM33.79 billion.

CIMB

CIMB’s net profit in 3QFY18 rose 4.2% to RM1.18 billion from RM1.13 billion a year earlier, on improvements from all segments except wholesale banking.

Revenue slipped 6.4% y-o-y to RM4.14 billion from RM4.42 billion due to a decline in non-interest income and net interest income.

For 9MFY18, CIMB’s net profit rose 31.1% to RM4.47 billion from RM3.41 billion in the previous year, while revenue was marginally higher at RM13.31 billion compared with RM13.11 billion a year ago.

CIMB group CEO Tengku Datuk Seri Zafrul Aziz said the group delivered a record profit before tax of RM5.69 billion in 9MFY18, despite the challenging operating landscape.

“The good 9MFY18 performance was underpinned by lower provisions and costs, continued improvement from consumer and commercial banking, as well as a recovery in wholesale banking revenue in 3QFY18,” he said.

Alliance

Alliance recorded its highest quarterly net profit in three years of RM140.52 million for its 2QFY19, up 14.43% from RM122.8 million a year ago, as revenue strengthened.

Revenue grew 1.35% to RM399.19 million from RM393.88 million, mainly from net interest income, the group said in a stock exchange filing.

It declared a first interim dividend of 8.5 sen per share for FY19, payable on Dec 28. This represents a payout ratio of 48%.

For the six months ended Sept 30 (1HFY19), the group’s net profit rose 7.4% to RM276.89 million from RM257.8 million, as net income grew 2.53% to RM800.26 million from RM780.49 million, on expansion of total gross loans or financing by RM2 billion.

Alliance group CEO Joel Kornreich said that the group’s efforts and focus on its strategic pillars are key contributors to the strength of its financials this year.

“We see our efforts yield encouraging growth on a year-on-year basis. Our underlying net interest income increased by 5.4% year-on-year for the period of 1HFY19, as a result of better risk adjusted return loans and higher net interest margins,” he said.