Malayan Banking’s quarter one 2023 results met the expectations of RHB Research (RHB). Support to its earnings growth is underpinned by benign credit cost, better associate contributions, and a lower effective tax rate. Key negatives identified by RHB are the net interest margin drag and operating expenses escalation.
Management is maintaining its financial year 2023 guidance, but has flagged the potential for lower credit costs if asset quality continues to hold up, said RHB in the recent Malaysia Results Review.
Quarter one 2023 net profit rose 11% year-on-year or 5% quarter-on-quarter to RM2.3 billion, making up 24% of RHB and consensus financial year 2023 future net profit.
Gross loans expanded 5% year-on-year , driven by the domestic and Indonesia segments. Meanwhile, total deposits rose 3% year-on-year with Malaysia and Singapore as the main drivers.
“We note the continued shift in the deposit mix with fixed deposits (FDs) rising 17% year-on-year or 5% quarter-on-quarter, whereas current accounts savings accounts (CASA) slipped 13% year-on-year or 3% quarter-on-quarter as depositors hunted for higher yields,” said RHB.
This was especially pronounced in Singapore, with Maybank’s CASA in that market falling 44% year-on-year. As such, group CASA ratio at end-March eased to 39.1% from 40.9% in Dec 2022, albeit above the pre pandemic level of 35.5%.
Malaysia was the biggest contributor to the year-on-year net interest margin decline and, to an extent, Singapore. However, Maybank has seen local FD board rates start to ease and plans to adjust down its FD rates as well from quarter two 2023.
Together with May’s overnight policy rate hike, these should bode well for net interest margins ahead. Management maintained its 5 to 8 basis points net interest margin compression guidance for financial year 2023.
Compared against the financial year 2022 and quarter one 2023 net interest margins of 2.39% and 2.19%, this suggests the worst may be over for net interest margin pressure.
Asset quality held up with gross impaired loans (GILs) down 3% quarter-on-quarter as new impaired loan formation stayed low, coupled with write-offs. As such, its GIL ratio improved to 1.5% in quarter one 2023 while loan life coverage ratio rose further to 134%.
Overlay buffers stayed at RM1.7 billion. Maybank remains watchful for potential asset quality stress from consumer and SME loans as there have been incidences of missed payments post exit from repayment assistance programmes. The corporate segment, however, has been holding up better than expected.
