This article first appeared in The Edge Financial Daily on June 12, 2019

KUALA LUMPUR: Malaysia Building Society Bhd’s (MBSB) internal restructuring will result in its wholly-owned banking subsidiary — MBSB Bank Bhd, formerly known as Asian Finance Bank Bhd — being the group’s holding company within two years.

Its president and chief executive officer Datuk Seri Ahmad Zaini Othman told reporters yesterday that for it to happen, MBSB still has to convert its conventional assets worth about RM1 billion to Islamic assets, making up about 10% to 12% of its asset portfolio.

“Under our business plan, Bank Negara [Malaysia] gave us about three years to collapse all the conventional assets,” said Ahmad Zaini. MBSB Bank obtained its banking licence to undertake Islamic banking in April last year.

Once the group completes this internal restructuring, Ahmad Zaini said MBSB Bank will then have a full syariah-compliant certification or endorsement.

“This [will then also] open up many more opportunities for us, once it is a syariah-compliant stock, it is easier to attract more investors and investments,” he said after the group’s annual general meeting here.

He also shared some key performance indicators (KPIs) for the group’s financial year ending Dec 31, 2019 (FY19). Loan growth, for one, is targeted to be more than 5%, a non-performing loan (NPL) ratio at 1.2% to 1.3%, and a net return-on-equity (ROE) of 10%. In FY18, its loan growth was at 3%, NPL — 1.2% to 1.3%, and net ROE — 8.2%.

Ahmad Zaini said the higher loan growth target will be supported by the group’s new revenue streams such as trade finance, wealth management, Internet and mobile banking, besides alternative financial services or peer-to-peer financing.

“Our focus is to retain our core competencies with personal financing, home mortgage and property financing, and also look at new income streams.”

On whether the group’s earnings will still be impacted by higher expected credit losses (ECL), Ahmad Zaini said: “As long as we are able to maintain and manage our ECL, I think we should be able to neutralise them.”

“The existing ECL are something we are continuously monitoring and doing recovery. We will need to manage them aggressively. It’s very difficult to say if [we will still see] higher ECL this year,” he added.

MBSB’s net profit for the first quarter ended March 31, 2019 (1QFY19) fell 73.5% to RM83.83 million from RM316.79 million a year ago, due to higher ECL. Revenue for 1QFY19 declined 3.8% to RM784.04 million from RM815.04 million.

The increase in ECL was mainly because a write-back was recorded for 1QFY18 as a result of staging an improvement from Stages 2 to 1, MBSB had previously said.

According to the bank, financial assets with a 12-month ECL are recognised to be in Stage 1. Those considered to have had a significant increase in credit risk are in Stage 2, and those with an objective evidence of impairment and considered impaired are in Stage 3.

MBSB shares rose one sen or 1.06% at 95.5 sen yesterday, with a market capitalisation of RM6.1 billion.