AmBank's 1Q net profit falls 37.6% on weaker non-interest income

AmBank's 1Q net profit falls 37.6% on weaker non-interest income
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GEORGE TOWN (Aug 19): AMMB Holdings Bhd (AmBank Group)’s net profit dropped 37.6% to RM339.5 million or 11.31 sen per share in its first quarter ended June 30 (1QFY16), mainly on lower other operating income, net interest income and net income from the insurance business.

There was also an impairment writeback on financial investments that was reported in the previous corresponding period (1QFY15), when it posted a net profit of RM536.94 million, its filing to Bursa Malaysia today showed.

In a statement, AmBank Group said excluding the one-off divestment gain in 1QFY15, non-interest income — which constituted 36% of its total income — fell 8.7% y-o-y to RM347.2 million.

Its latest quarterly revenue came in 18.34% lower at RM2.11 billion, versus RM2.58 billion in 1QFY15.

Segmentally, profit after tax (PAT) for retail banking decreased 3.7% year-on-year (y-o-y), as gross loans contracted (4.6% y-o-y) mainly from the de-risking of auto finance portfolio and reducing exposure to less preferred segments, while margins were also compressed.

Its wholesale banking’s PAT declined 12.6% due to margin compression, subdued capital market activities, and lower fixed trading income. Loan growth was also flat y-o-y, given weak loan appetite and slow business investments, though deposits were stable y-o-y, it noted.

Meanwhile, its general insurance segment’s net premium was maintained y-o-y, but PAT declined 5.9% y-o-y, as a result of lower investment income; life assurance and family takaful saw a loss of RM2.8 million caused by lower net premium earned and higher management expenses.

As at June 30, the group’s total assets stood at RM131.7 billion, while its total capital ratio was at 16.1%, based on Basel III requirements.

It noted while there were some outflows of term deposits in 1QFY16 due to intense market competition, the liquidity coverage ratio (LCR) for the group’s three banking entities were above 100% as at June 30.

The group’s gross impaired loan ratio was at 1.80%, while loan loss coverage remained above 100%.

Moving ahead, the group forecasts a modest annual gross domestic product (GDP) growth of 4.7% for the country this year, due to softer consumer demand and lower commodity prices, though exports should remain resilient, while public investments continue.

It expects private consumption to grow moderately, while business and economic conditions are expected to remain challenging in the longer-term.

"In the near to medium-term, the banking sector is expected to experience slower loans growth and narrowing net interest margins, while asset quality may come under pressure," it said.

Externally, the recent yuan devaluation, ringgit depreciation and potential hike in US interest rates, could lead to further market volatility, it noted.

“Despite a soft quarter with slowing economic growth, our Group remains committed to deliver risk adjusted returns with key initiatives in place to drive sustainable growth, supported by ongoing investments to improve our capabilities and customer experience,” said the group’s acting group managing director Datuk Mohamed Azmi Mahmood.

At 3.19pm, AmBank Group (valuation: 3; fundamental: 1.5) fell eight sen or 1.6% to settle at RM4.92, giving it a market capitalisation of RM14.83 billion.
(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)