Malayan Banking Berhad (Maybank) is the largest financial services group in Malaysia and has a regional presence in 18 countries, including all 10 ASEAN countries with Malaysia, Singapore, and Indonesia as its home markets. It is also the largest listed company in Malaysia with a market capitalisation of around RM100 billion. In ASEAN, it is the fourth largest bank by asset size.
I took the opportunity to attend its recent annual general meeting. Here are 12 things I learned from the 2019 Maybank AGM:
1. Dividend per share grew 3.6% year-on-year to 57 sen in 2018, which translates to a total dividend payout of RM6.3 billion. As a result, dividend payout ratio stood at 77.3% in 2018. It also managed to sustain its dividend yield at about 6.0%. Maybank’s dividend payout ratio ranges between 40% and 60% as per its policy and has been paying a dividend above its target ratio since 2010.
2. Amidst external headwinds, Maybank’s liquidity capital ratio (LCR) was 132.4% in 2018, ahead of the 100% requirement. LCR is an indicator of a bank to meet short-term obligations. It is currently regarded as a better indicator of a bank’s liquidity compared to loan-to-deposit ratio. The volatility of LCR is approximately 30%, therefore Maybank kept an additional 30% LCR buffer ahead of Malaysia’s General Election in May 2018 to maintain a healthy liquidity position. Maybank’s LCR once hit 177% in April 2018 at one point.
3. Gross impaired loans ratio increased marginally from 2.3% year-on-year to 2.4% in 2018 against the industry standard at 1.5%. Meanwhile, the amount of newly impaired loans has been decreasing in the past three years.
4. Minority Shareholder Watch Group noted the increase in impaired financial assets in loans, advances, and financing for the electricity, gas, and water supply sector. President and CEO Datuk Abdul Farid Alias explained that this was due to the impairment of an operator of an integrated water and power plant operating in Singapore (i.e. Hyflux). It is currently undergoing a financial reorganisation exercise.
5. The CEO did not reveal much about about the impact of provisions of loans to Hyflux Ltd, Sapura Energy Berhad, and Scomi Group Berhad. Maybank has an estimated RM4.5 billion exposure to Sapura Energy and RM2.0 billion to Hyflux. It also issued a notice of demand to Scomi and its subsidiary Scomi Rail Bhd respectively at RM114.0 million and RM201.9 million.
6. The CEO did not confirm the listing of its insurance arm, Etiqa International Holdings Sdn Bhd. He only told shareholders it is one of Maybank’s significant businesses and the biggest insurance group in Malaysia with regional presence. However, they will constantly evaluate opportunities that will add value to shareholders.
7. As a response to a shareholder’s question, the CEO said that there are over 120,000 unsold homes in Malaysia. The same situation arose during the 1997/98 Asian Financial Crisis when over 90,000 homes were left unsold in the country. He believes that affordability is the main issue and properties are too expensive. To help improve the situation, property developers need to reduce their profit expectations. At the same time, Maybank will continue to lend money only if the creditworthiness of a borrower is deemed fit within its risk management framework
8. A shareholder highlighted that total operating income for the group asset management segment decreased by 61.3% year-on-year to RM95.8 million in 2018. Maybank incurred an operating loss of RM86.5 million in 2018 against its RM72.6 million operating profit in 2017. The operating loss is due to losses recorded in bond and equity investments. In addition, Etiqa was also not spared from the losses as it manages bond and equity funds. As a result, its investment income was lower in 2018 because of the equity performance, which negatively affects its operating profit.
9. Maybank faces competition in terms of fixed deposits as a result of the net stable funding ratio that will be implemented in 2020. This new ratio requires banks to have sufficient long-term deposits. Many banks have ramped up deposits ahead of the 100% requirements. If Maybank chooses to compete with its competitors by offering a higher fixed deposit rate, net interest margin will be reduced which will erode profits and dividends. In addition, Maybank competes with non-bank players for current and savings accounts as it is easier for customers to move funds from one place to another nowadays.
10. Maybank launched its lifestyle-themed e-wallet, MAE in March 2019. The CEO explained that MAE exists for two reasons, namely safety and to regain market share. MAE enables customers to pay using a virtual wallet instead of their savings or current accounts, thereby better protecting their money. It is also safer than a physical wallet. MAE allows Maybank to regain its market share in the e-wallet banking space which has been encroached upon by non-banking players. MAE garnered 170,000 users within one day after it was launched and has close to 600,000 users (as of 11 April 2019) mainly due its large active M2u userbase of more than five million. Maybank defines active users as those who log in every month as opposed to three months as defined by BNM. Maybank has also partnered with Grab to facilitate cashless payment across Malaysia.
11. The CEO prioritises user experience in M2U (Maybank’s online banking) in order to differentiate itself from its competitors. He explained that M2U has the highest user traffic among all financial institutions by processing approximately 60% of all electronic banking transactions in Malaysia. Thirty million users go to M2U each month, which translates to a million user visits per day.
12. A shareholder compared Maybank’s higher cost-to-income ratio of 47.4% against some of its peers which are around 33%. The CEO said that the board discuss the matter monthly and pointed out that the three Singapore banks also maintain their ratios between 42% to 45%. He added that Maybank can achieve a lower cost-to-income ratio if they invest less in technology. But it’s more important to provide good financial services to companies and the community while maintaining a sustainable cost-to-income ratio.
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