KUALA LUMPUR: Malaysia Building Society Bhd (MBSB) saw its net profit for the second financial quarter ended June 30, 2015 (2QFY15), plunging 63% to RM85.55 million from RM232.86 million in the previous corresponding quarter, dragged down by higher allowances for impairment losses on loans, advances and financing.
Its earnings per share shrank to 3.41 sen from 8.85 sen.
The higher impairment losses recorded are in line with the continuation of the impairment programme initiated by the group in 4QFY14, said MBSB in a filing with Bursa Malaysia yesterday.
Its latest quarterly revenue, meanwhile, was up 13.9% to RM765.78 million from RM672.08 million a year ago, due to higher income from investments of liquid assets and higher financing income from the corporate segment.
When contacted, Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew told digitaledge Daily that MBSB’s bottom line may continue to be pressured.
“Yes, impairment is a one-off thing, but it will affect the group’s interest income, while it (MBSB) has to continue serving its interest expense [for deposits] for the money that was used to finance these loans that were written off,” he explained.
MBSB’s 2QFY15 interest expense jumped 68.1% to RM68.99 million, from RM41.04 million in 2QFY14, but interest income merely grew by 1.88% to RM127.05 million, from RM124.70 million.
Unlike banks, Pong noted that MBSB is not allowed to tap into the interbank money market.
For the first half ended June 30, 2015 (1HFY15), MBSB’s (fundamental: 1.2; valuation: 3) net profit slid 51% to RM209.87 million, or 7.67 sen per share, from RM429.59 million, or 17.22 sen per share, in 1HFY14, due to the initiation of the impairment programme.
Its 1HFY15 revenue grew 9% to RM1.46 billion from RM1.34 billion previously, and its cost-to-income ratio has also remained relatively consistent with the previous year’s corresponding period to stand at below 24%
Commenting on the group’s results, MBSB president and chief executive officer Datuk Ahmad Zaini Othman said the group will remain committed to the impairment programme. He added that the group is encouraged by the upward trend in revenue, principally due to its expansion in the corporate segment.
“Our expansion in the corporate segment is a conscious effort that we have continued to exert in ensuring that a balanced and healthy exposure is achieved between corporate and retail segments,” said Ahmad Zaini.
The group’s total assets of RM41 billion as at June 30, grew by 8.9% or RM3.3 billion from RM37.7 billion as at Dec 31, 2014, mainly contributed by its liquid assets, which grew 47.5% or RM2.7 billion.
The impairment programme and collection recovery strategies have improved the group’s net impaired financing ratio from 4% as at March 31, 2015, to 3.8% as at June 30, 2015.
MBSB has also improved in other areas, recording a cost-to-income ratio of 23.4%, an improvement of 1.1% compared with 24.5% in the preceding first quarter of 2015.
The group’s annualised return on equity (ROE), based on its 1HFY15 financial performance of 8.8% falls short of its target FY15 ROE of 12.5%, mainly due to the fall in operating profit as a result of lower net income from retail financing and loans.
“They (MBSB) could expand further in the corporate segment, but it has very limited options in terms of sources of fund, one of it is borrowings, which will incur higher interest expenses. I think it has reached the limit of its balance sheet,” said Pong.
Therefore, Pong opined that one of the ways for MBSB to break through this bottleneck is through a merger exercise.
Talk of a possible merger exercise by MBSB has not stopped even after the cancellation of the three-way merger with CIMB Group Holdings Bhd and RHB Capital Bhd.
Lately, MBSB denied a media report that it had obtained Bank Negara Malaysia’s verbal consent for a potential merger with Bank Muamalat Malaysia Bhd.
This article first appeared in digitaledge Daily, on August 7, 2015.