KUALA LUMPUR (Feb 27): Malayan Banking Bhd (Maybank) is expecting to see net interest margin (NIM) compression of five basis points (bps) this year, amid external developments such as the COVID-19 outbreak, continued trade dispute between US and China as well as geopolitical tensions.

For the financial year ended Dec 31, 2019 (FY19), the bank's NIM fell 6 bps to 2.27% from 2.33% in FY18, as group gross loans expanded by 1.2% while group deposits expanded 1.6%.

Its targets for 2020 include a cost-to-income ratio of between 46% and 47%, and return on equity of 10% to 11% amid slower economic growth and a lower interest rate environment.

Asked on the impact that the COVID-19 virus may have on the bank, Maybank group president and chief executive officer Datuk Abdul Farid Alias said that the bank's exposure to the virus is small.

"We have done a stress test on COVID-19, based on our exposure to the sectors directly affected by the virus. We have more than sufficient buffer in terms of liquidity and capital.

"I can't tell you the potential impact on earnings but our exposure is quite small. A lot less than 10%, in terms of the affected sectors such as airlines, retail and tourism," he said.

On the political uncertainty in Malaysia, Abdul Farid said it is hard to tell if loan growth may be affected by the events.

However, he said that Malaysians have been rather mature in handling the situation and that this event would have turned out differently if it were to happen in other countries.

He said that Maybank, despite the current political instability, will continue to play its part in helping to grow the economy.

On the key economic indicators for Malaysia, the bank expects economic growth of 4% in 2020 versus 4.3% in the previous year, and a cut in the overnight policy rate (OPR) to between 2.5% and 2.75% this year.

It expects systems loan growth of 4.3% in 2020 versus 3.9% last year.

Maybank's net profit for the fourth quarter ended Dec 31, 2019 rose 5.1% to RM2.45 billion from RM2.33 billion a year earlier, on the back of its community financial services, Islamic banking, and insurance and takaful segments' robust performance.

Revenue for the quarter rose to RM12.98 billion from RM12.23 billion previously.

Maybank proposed a final single-tier cash dividend of 39 sen per share,  translating to RM7.19 billion. This brings full-year dividend to 64 sen per share.

For the financial year ended Dec 31, Maybank’s net profit increased to RM8.19 billion from RM8.11 billion in the year-ago period, on the back of higher revenue of RM52.84 billion versus RM47.32 billion.