KUALA LUMPUR: Malayan Banking Bhd’s (Maybank) net profit was up 6.2% to RM1.7 billion for the first financial quarter ended March 31, 2015 (1QFY15), from RM1.6 billion a year ago. The single-digit profit growth seems impressive at a time when many of its banking peers were hit by provisions or decline in non-interest income.

Maybank (fundamental: 1.5; valuation: 1.45) said the earnings growth was supported by healthy rise in fee income, coupled with robust loan growth that boosted performance across all its business pillars.

The banking group’s revenue was higher at RM9.18 billion against RM8.36 billion a year ago.

Its net operating income surged 12.5% to RM4.99 billion for the quarter under review, from RM4.44 billion a year ago.

This was on the back of a 20% rise in net fee-based income and a 9.3% rise in net fund-based income. The rise in fee income was driven by increases in commissions, service charges and fees, as well as higher net earned insurance premiums, while net fund-based income was lifted by higher conventional and Islamic loan growth.

Loans for the quarter expanded 14.3%, led by international loans which grew 19.4%. In the three home markets — Malaysia, Singapore and Indonesia — loans rose 10.2%, 11.6% and 7.1% year-on-year (y-o-y), respectively. Islamic financing, meanwhile, surged 29.5% y-o-y.

In a filing with Bursa Malaysia yesterday, Maybank explained that its profit had also increased on “higher foreign exchange gain of RM232.6 million, higher unrealised mark-to-market gain on financial assets at fair value through profit or loss of RM213.1 million, and higher fee income of RM151.9 million”.

“In 2015, the group will intensify focus on fee income business activities in its key markets. This includes capturing regional deals and trade finance opportunities, building our wealth management business and expanding our insurance business,” Maybank said.

Moving forward, Maybank sees loan growth in the domestic banking sector to moderate slightly for FY15, with a projected 7% to 8% from 9.3% for FY14, due to easing of household loan growth to 8% to 9% from 9.9% for FY14.

Maybank said it hopes to achieve loan growth of between 9% and 10%, and return on equity of between 13% and 14%. Both targets are on the group’s key performance indicator list.

For the first quarter ended March 31, 2015 (1Q15), CIMB Group Holdings Bhd (fundamental: 1.05; valuation: 2.25), Alliance Financial Group Bhd (fundamental: 1.5; valuation:1.9), Affin Holdings Bhd (fundamental:1.1; valuation: 2.25) and Hong Leong Financial Group Bhd (fundamental: 2.6; valuation: 2.4) had all reported a drop in net profits.

Maybank, Public Bank Bhd and AMMB Holdings Bhd, meanwhile, managed to achieve profit growth for 1Q15.

Areca Capital Sdn Bhd chief executive officer Danny Wong said the performance of Maybank and Public Bank can be attributed to the modus operandi of both banks.

“Looking at the overall performance of the banking sector for the first quarter of the year, the similar theme was the contraction in net interest margin (NIM) for the banks. If you look at Maybank and Public Bank, their [modus operandi] was to be more spread out in financial services provided, which allowed a buffer from NIM compression,” said Wong.

Being more spread out in their financial services, said Wong, had allowed Maybank and Public Bank to grow their non-interest income.

On the outlook for the next few quarters, Wong said he is “underweight” on the banking sector.

“Slower loan growth [considering] the more stringent lending guidelines from Bank Negara [Malaysia], as well as margin compression due to higher deposit costs, have painted a bleak outlook for the sector for the next few quarters,” said Wong.

This article first appeared in The Edge Financial Daily, on May 29, 2015.