This article first appeared in The Edge Malaysia Weekly on July 29, 2019 - August 4, 2019

AMMB Holdings Bhd’s group CEO Datuk Sulaiman Mohd Tahir can perhaps finally catch his breath, having now made notable progress in his four-year “Top 4” plan to put the group on a stronger and more sustainable growth path.

But there is still much to do, and he is not ready to slow down.

In an interview with The Edge, Sulaiman speaks a mile a minute about what AMMB — better known as the AmBank group — has achieved so far and what else needs to be done. He is clearly passionate about the task of transforming the country’s sixth largest lender by assets.

His Top 4 plan comes to an end this financial year ending March 31, 2020 (FY2020). Already, discussions are underway for the group’s next four-year plan.

“It hasn’t been easy, but we’ve finally built up the infrastructure, got the right people in charge, got the processes in place. The foundation has been laid, so now, it’s time for us to really push our areas of focus [identified under the Top 4 plan]. The next four years will be about cranking up the growth in these areas,” he says, dropping a hint on the thrust of the next strategic plan.

The Top 4 plan was so named because AmBank aspired to be a top-four bank in certain segments and products that were previously underpenetrated, a key one being the SME (small and medium enterprise) segment.

Sulaiman readily admits that he has had to scale down some targets. “It’s a question of the environment. Those days, when I projected loan growth of 15%, the industry was doing something like 9% loan growth. I’ve had to scale down that target due to the softer environment, but our loan growth is nevertheless better than the industry’s,” he shares.

AmBank’s loans grew 5.7% in FY2019 compared with the industry’s 4.9% growth in that period. Sulaiman is targeting 6% growth this year, while the industry is expected to see 4% to 5% growth.

He is quick to add, “But, if you talk about our positioning, I would be Top 4 in the areas that I’ve targeted to expand in — maybe not in terms of our base, but in our growth rates. That has been the case with SME, credit cards and wealth management, for example.”

Apart from SME, the other areas AmBank is focused on under its Top 4 strategy are the affluent, mass-affluent and mid-corporate segments. This is a big change from a tendency in the past to focus on large corporates, which it still continues to tap, albeit opportunistically.

As for products, the focus is on cards, markets, transaction banking and wealth management. (See tables for AmBank’s Top 4 progress report.)

Tough road ahead

The headway that AmBank has made on these fronts is reflected in its strong FY2019 numbers. It shed 1,200 staff under a mutual separation scheme last year and sold RM554 million of retail non-performing loans (NPL) in January, helping it become a leaner and more efficient entity.

In FY2019, the group reported a 33% growth in net profit to RM1.505 billion. This was partly aided by several large corporate recoveries and the sale of the retail NPLs, which led to a net recovery of RM303.8 million compared with an impairment charge of RM15.7 million in the previous year.

Even so, the group’s profit before provisions grew a decent 15% to RM1.79 billion, Sulaiman points out. Loans and deposits crossed the RM100 billion mark for the first time.

“We have risen to maintain our top 3 position in FY2019, in terms of year-on-year growth, in some of the key financial metrics where we used to rank behind our competitors, including net interest income, return on equity (ROE), cost-to-income (CTI) ratio and deposits,” he says.

Analysts agree the Top 4 plan has helped put AmBank on a stronger footing. However, they question if it can maintain the growth momentum considering the tougher operating environment and external uncertainties from the ongoing US-China trade war.

A key area of concern is that AmBank’s ROE, at 8.8% last year, or 7.4% on an underlying basis, remains one of the lowest among the country’s eight banking groups.

“Overall, I think AmBank is progressing well under Sulaiman. The focus on SME is good and has helped drive CASA (current and savings accounts), but it is a space most other banks are also firing up, so it remains to be seen if it can keep gaining market share,” a banking analyst states.

Sulaiman aspires to sustain net profit at “circa RM1.5 billion” in FY2020. Critics will be watching closely to see how he does it, given the tougher industry outlook.

According to Sulaiman, what will likely make a difference to earnings this year is non-interest income (NOII).

The group’s ongoing focus on wealth management and foreign exchange should help boost NOII, while the investment banking business is likely to see a better year than the last, based on a pickup in activities in the first quarter of this year, he says.

He expects foreign exchange revenue to double to about RM200 million this year.

“When the environment improves, like we’re seeing in the first quarter, and hopefully also in the second and third quarters, then NOII will pick up and you’ll see even better growth from us,” he remarks.

He is however conscious of the possibility of a second cut in the overnight policy rate (OPR) by Bank Negara Malaysia this year, which would have an impact on earnings.

“We estimate that every 25 basis point cut in the OPR is RM20 million down in earnings,” he says.

Firing up SME loans

Although it is a relative latecomer in ramping up SME loans, AmBank has made strong strides. Its SME portfolio stood at RM20.2 billion in FY2019, accounting for about a fifth of the bank’s loan book.

Christopher Yap (picture), managing director of business banking, joined AmBank in 2017 from Alliance Bank Bhd to head the newly created division, under which SME banking falls.

“We grew at about 21% last year, whereas the market average was a single-digit pace. We are currently ranked No 5 or 6 in terms of assets, but at the rate we are growing, we should be able to leapfrog [to a better position]. We are clear on how we want to grow this segment — not just by dishing out products, but by building a platform to support SMEs,” says Yap, who was present at the interview.

Banks derive strong yields from SME loans, which is one of the reasons they have intensified their focus on the business. The recent 25 basis point cut in the OPR may result in AmBank’s net interest margin (NIM) in that space dropping slightly to “about 2.6% or 2.7%” this year from 2.8% in FY2019, says Yap.

This would still be better than the group’s overall NIM of 1.89% last year, which contracted by 11 basis points y-o-y.

According to Yap, its SME asset quality is sound, with gross impaired loan (GIL) ratio at “over 2%” compared with the industry’s 3.6%.

Apart from SME loans, AmBank also plans to make a comeback in hire purchase loans after having scaled back on it in recent years. Hire purchase loans shrank 16.7% last year to RM15.3 billion.

“If I can contain my hire purchase loans better this year, then our overall loan growth could be higher than 6%. There are good opportunities [for us] as car sales are starting to pick up again, especially in the national car segment. The difference now, compared with what we used to do in this segment, is the utilisation of analytics to segment our customers. Through analytics, we are in a position to offer customers differentiated pricing, and this allows us to be competitive,” explains Sulaiman.

AmBank’s asset quality improved last year, as reflected in its GIL ratio, which declined  1.59% from 1.7%. Sulaiman says he isn’t too concerned about the group’s exposure to the real estate and oil and gas sectors — areas deemed vulnerable in a slowing economy.

Of AmBank’s RM1.6 billion NPLs last year, about RM600 million was in real estate, while less than RM100 million was in O&G.

“We solved one problematic real estate account last year, and there remains one that we continue to work on, but it is backed by collateral, so I’m not too worried. Assuming we solve it this year, my GIL ratio will drop to 1.2% this year,” he says.

No mergers yet

While Sulaiman is busy charting out an organic growth path for AmBank, he is mindful that mergers with rivals are possible.

“I mean, if there are opportunities and it is something that makes sense, we will always look at it, like we did [in 2017] with RHB Bank Bhd. But it didn’t work out, so we walked away. It’s not as if we don’t have our own plans to grow,” he remarks.

It is well known that AmBank’s single largest shareholder, Australia and New Zealand Banking Group Ltd (ANZ), which holds a 23.78% stake, is looking to exit. The bank’s founder and chairman Tan Sri Azman Hashim, who recently turned 80, is also open to looking at options for his 12.97% stake.

Asked if the bank has received expressions of interest from other banks recently, Sulaiman says: “If there is, it is at the shareholders’ level, so I am not privy to such information.”

Until then, all eyes are on Sulaiman to see  if he can take the over 40-year-old banking group to its next level of growth.

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