This article first appeared in The Edge Financial Daily on May 29, 2019

KUALA LUMPUR: AMMB Holdings Bhd (AmBank Group) expects to maintain loan growth at 6% for the financial year ending March 31, 2020 (FY20) as the management wants to grow the group’s declining automotive loans while ensuring growth momentum is sustained for other loans.

Speaking at a media briefing yesterday, AmBank Group chief executive officer Datuk Sulaiman Mohd Tahir said for FY19, automotive loans were one of two decliners among the group’s loan portfolio. It fell by 17% or RM3.1 billion.

The other segment was loans to large corporations, which declined by 5% or about RM900 million.

“If we can do 6%, it will be very good because it is a function of the bigger environment. The thought process is about 1.5 times above [the growth rate of] GDP (gross domestic product), which was 4.5% [in the first quarter] ... the intention is to support businesses. We have built the processes [and] systems; we are clear about the target market and we want to grow faster than the industry,” he said.

“So if GDP goes up 5% or 6%, our loan growth target would be 8% to 9% because we want to grow faster than the industry,” he added.

For FY19, AmBank Group’s loans grew 6% to RM101.8 billion, the first time the group’s loans surpassed the RM100 billion mark. “The market grew 4% in FY19. So, it means we have again regained some market share,” he said.

In terms of AMMB’s return on equity, which came in at 8.8% for FY19 versus its targeted 8.5%, Sulaiman said the management’s guidance for FY20 is a flattish 9%.

The group is also aiming to reduce its cost-to-income (CTI) ratio further to equal or below 52.5% in FY20, from 54.3% in FY19. AMMB’s target for FY19 was below 55%.

As to automation, Sulaiman said digitisation not only improves its customer touchpoints, but also its internal operation efficiency. “That is ongoing and the harder aspect of taking out cost ... hopefully, we could bring it down further to [a CTI ratio of] below 50% in the following year (FY21),” he said.

The group’s net profit jumped 81% to RM459.67 million for the fourth quarter ended March 31, 2019, from RM253.41 million a year ago, thanks to substantial net write-back for impairment for loans, advances and financing that amounted to RM271.56 million. It also posted a 10.7% growth in interest income to RM1.24 billion from RM1.12 billion previously.

The group’s chief financial officer Jamie Ling yesterday said the write-back was mainly for retail loans, and that the group is hoping to resolve a certain amount of corporate non-performing loans (NPLs) in FY20.

“We have quite a few lumpy corporate NPLs that we are working through, and the visibility of resolving them is better as we enter FY20 — we are hopeful on that. Credit quality overall is stable.

“While we feel the economy might be challenging moving forward, obviously we have exercised credit vigilance, but our number in terms of loan loss coverage, which is how much provisions we have against our bad book, is over 115%, so we are well covered on our NPLs,” he said.

But stiff competition is compressing its net interest margin (NIM), Ling said. The group’s NIM fell 11 basis points to 1.89% in FY19, from 2% in FY18.

“There are some margin pressures, but I don’t think we are alone in this space, given that there is much liquidity in the market chasing for lower loan demand,” he said.

Capital- and funding-wise, Ling said the group is “very liquid, maybe overly liquid”. Still, a higher liquidity buffer is prudent if further challenges and volatility are anticipated. “But obviously, it impacts us in terms of NIM, so we have to make those kinds of trade-offs.”

Higher dividend payout

The group’s customer deposits grew 12% in FY19, versus the industry’s 6%. “[For the] current account saving account, we grew 22%, while the market grew 3%, so we are winning a big market share in these two dimensions,” said Ling.

Capital-wise, things look adequate too. “We are feeling confident that for FY20, we will be guiding perhaps, potentially, a higher dividend at a payout ratio of 45% (from 40% for FY18),” he said.

In a Bursa Malaysia filing yesterday, the group recommended a final dividend of 15 sen per share, which brings its FY19 payout to 20 sen.

For full FY19, AMMB’s net profit grew 33% to RM1.51 billion, from RM1.13 billion for FY18, while interest income grew 13.24% to RM4.89 billion, from RM4.32 billion over the same period.

AMMB’s share price rose 12 sen or 2.8% to RM4.39 yesterday, giving it a market capitalisation of RM13.23 billion.