Maybank keeps conservative stance after record profit year

This article first appeared in The Edge Financial Daily, on February 27, 2019.

(From left) Abdul Farid, Maybank chairman Datuk Mohaiyani Shamsudin, and group chief financial officer Datuk Amirul Feisal Wan Zahir during the release of Maybank’s fourth-quarter financial results in Kuala Lumpur yesterday. Photo by Shahrin Yahya

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KUALA LUMPUR: The country’s largest bank Malayan Banking Bhd (Maybank), which achieved record high net profit in 2018, said it maintains a conservative stance on the growth outlook for the financial year ending Dec 31, 2019 (FY19) as various external uncertainties loom.

Maybank group president and chief executive officer Datuk Abdul Farid Alias said a major portion of these uncertainties stem from external developments, such as the trade tension between the US and China, as well as the Brexit in the UK and Europe, which has clouded the global economic outlook going forward.

“The uncertainties that we are facing are mostly from the external environment. This is a scenario that no one has seen, ever. First, we have the US-China trade tension, which nobody quite knows where it is going; and secondly, we have Brexit.

“Brexit might not have a big impact externally, but it will involve a significant movement of people and resources from the UK to Europe. There is quite a bit of uncertainty externally that we need to understand better,” he told the media yesterday in conjunction with the release of the bank’s fourth-quarter financial results.

On the other hand, Abdul Farid said that conditions are improving domestically, as the government continues to progress in terms of governance reform and other initiatives, such as the measures taken to clear the stock of unsold property in the market.

However, he highlighted that many of Maybank’s clients — investors — are waiting for greater clarity on Malaysia’s mid- to long-term policies, which has also been a dampener on the group’s business banking segment.

“We hope that the business banking segment will turn around this year. In order for businesses to start making investments, especially in capital expenditure such as acquiring new factories, we need to understand the government’s long-term economic policy.

“This would help a lot of business owners to formulate a plan on how they want to move forward,” said Farid.

 

Net interest margin compression

The banking giant expects NIM compression to continue in 2019, after a three-basis-point (bps) contraction in 2018. It foresees NIM margins shrinking further by between 3bps and 5bps this year.

This is largely due to stiff competition in Malaysia, amid the net stable funding ratio requirement which has resulted in banks competing for deposits to meet the liquidity requirement. Meanwhile, the competition in Indonesia is not easing either.

Looking ahead, Maybank expects Malaysia’s gross domestic product growth to be 4.9% for 2019, slightly higher than the 4.7% in 2018. It anticipates system loan growth of 5.1%, compared with 5.6% in the previous year.

“Of course, we would like to improve our revenues, profits and productivity. But the minute we notice an uncertain trend forming, we decide to hold out and focus on liquidity and capital.

“We are not concerned about short-term profitability as we want to ensure our long-term sustainability, which is why we always look at liquidity and capital as our priority over short-term profitability,” Abdul Farid said.