Established in 1960, Malayan Banking Berhad (Maybank) is the largest listed company by market capitalisation on Bursa Malaysia. It is also the largest financial services group in Malaysia with a key presence in Singapore and Indonesia. Maybank is a household name in Malaysia and its more modern apps and services are perceived as more user-friendly among locals.
When Bank Negara Malaysia cut the overnight policy rate four times from 3.00% to 1.75% in 2020 alone to spur economic growth, Maybank’s performance and net interest margin was impacted by the reduced interest income chargeable for loans.
Here are 10 things I learned from the 2021 Maybank AGM.
1. Maybank’s net profit was 20.9% lower year-on-year at RM6.5 billion in 2020 because of COVID-19. Its performance came under pressure as there were aggressive interest rate cuts across its home markets, namely Malaysia, Singapore, and Indonesia. These markets recorded significant GDP contractions in 2020 because of the subdued business activities.
The group recognised net allowance for losses on loans amounting to RM4.6 billion in 2020 based on the current economic outlook. Likewise, dividend per share decreased from 64.0 sen in 2019 to 52.0 sen in 2020. Its dividend payout ratio stood at 91.2% in 2020 and averaged at 86.0% between 2010 and 2020. The policy will be maintained between 40% and 60% while the management will focus on managing liquidity during this crisis.
2. As events were either cancelled or deferred in light of physical distancing requirements, the group’s overhead expenses reduced by 2.7% year-on-year. Likewise, cost-to-income ratio reduced from 46.7% in 2019 to 45.4% in 2020 (the lowest in the past decade).
The group also managed to reduce its personnel spend through a salary freeze among senior management since 2019 because of flat revenue growth and a tough business environment. On a separate note, the increase in group president & CEO Datuk Abdul Farid Alias’s remuneration in 2020 was due to long-term cash awards.
|Indicators||2020 Performance||2021 Target||2025 Target|
|Return on equity (ROE)||8.1%||9.0%||13%-15%|
|Net credit charge-off rate||88 bps||70 bps-80 bps||–|
3. Permodalan Nasional Berhad (PNB) questioned the surge in unrealised gains in derivatives from RM145.7 million in 2019 to RM1.o billion in 2020. Farid explained that the spike was due to interest rate swaps entered into by the bank to hedge its interest rate risk. The group was a net fixed rate receiver in 2020 and benefited from the declining interest rate. It looks to be a fix rate payer and floating rate receiver in a rising rate environment, and a floating rate payer and a fix rate receiver in a reducing rate environment.
Maybank does not foresee any changes in the overnight policy rate at 1.75% in the short term. If Bank Negara Malaysia reduces the overnight policy rate by 25 basis points, Maybank’s net interest margin will reduce by 1 to 2 basis points. Its net interest margin compressed 17 basis points year-on-year to 2.1% in 2020.
4. PNB pointed out that Maybank performs moderately in terms of ratios such as net interest margin, ROE, and gross impaired loan ratio compared to its local peers. Farid explained that Maybank is a regional bank that’s present in both retail and corporate segments while its local peers are more domestically-focused and retail-centric. Corporate segments in general also involve greater amounts of loans and higher risks of default.
Because of this, two banks (Public Bank and Hong Leong Bank based on what I found) outperformed Maybank in terms of ROE and gross impaired loan ratio according to its internal benchmarking assessment.
|2020 Indicators||Maybank||Hong Leong Bank||Public Bank|
|Gross impaired loan ratio||2.2%||0.6%||0.4%|
Maybank’s gross impaired loan ratio was higher in Singapore and Indonesia than in Malaysia because of the liberalisation of policies for the power sector in Singapore and the deteriorating quality of non-retail clients’ assets in Indonesia, exacerbated by the impact of the pandemic.
5. Minority Shareholder Watch Group wondered if Maybank could keep up with integrating sustainability into its financing and investing activities like its peers. Farid responded that Maybank has adopted a no deforestation, no new peat, and no exploitation (NDPE) stance across the sectors it finances since January 2020.
The group has also committed not to finance any new coal activities. The group’s exposure to coal financing and the aviation industry were negligible at 0.2% and less than 1% in 2020. Approximately 10% of its financing in the power segment at RM2.6 billion came from the renewable energy sectors. It contributed over RM20 million as part of its pandemic relief efforts. Over RM3.0 million was raised through its crowdfunding platform, MaybankHeart, to help vulnerable communities and support COVID-19 initiatives.
6. The group rolled out a number of digital initiatives in 2020 to meet customers’ banking needs. These include SME digital financing where the end-to-end loan application process including application, approval, and disbursement is done online within 10 minutes. About RM1 billion has been disbursed through this initiative. These initiatives are commendable but could have been introduced earlier if the group was thinking ahead of its peers in terms of digitisation.
Farid mentioned that Maybank did not have the relevant tools to assess the credit rating of these SMEs until Ant Group and Tencent started financing the segment. Maybank’s process is enabled by machine-learning and will continue to improve. According to Farid, Maybank has more than 500,000 SME customers but less than 10% of them borrow money from Maybank.
7. In 2021, MAE (an e-wallet issued by Maybank) had 1.8 million users and close to 1.3 billion transactions were processed. It is a tool to increase its customer base especially among non-Maybank customers. It aims to become the lifestyle partner of its customers as indicated in its new five-year blueprint, M25, and bring three million users on board by 2021.
In Malaysia, mobile banking commands 60% of the market share by transaction volume according to CFO Dato’ Amirul Feisal Wan Zahir. Maybank does not plan to obtain a digital banking licence as it is already operating digitally, and the licence is more applicable to non-banking players.
8. In Malaysia, a six-month blanket loan moratorium was made available to all individuals and SMEs between April and September 2020 to help them stay afloat. Repayment of loans was automatically deferred. Throughout the six months, many customers who remained relatively unaffected opted out of the moratorium as they could continue serving their loans. As the six-month deferment ended, a payment assistance scheme was rolled out for selected borrowers who continued to be affected.
In 2020, 68% of the borrowers had resumed repayments, 30% were on extended relief measures provided by Maybank while the remaining 2% missed payments. Farid added that loans under the payment assistance programme are not impaired.
9. Maybank Islamic has recently established an offshore branch in Dubai, United Arab Emirates in 2020 to focus on wholesale and non-retail business activities as well as to foray into the Middle East markets. Maybank recorded 4% loan growth in Malaysia but the loan growth at the group level was flat, with overseas portfolios shrinking 6.4% year-on-year. The loan growth is expected to be in line with industry growth moving forward.
10. Maybank rescheduled its AGM as a technical issue was experienced by Tricor, its initial remote participation and voting service provider. Many shareholders were not able to log in to participate in the AGM. As a result, Maybank engaged another supplier and rescheduled its meeting. Maybank did not make any payment to Tricor and would discuss with the company how Maybank could be compensated. The cost of the virtual AGM was estimated to be RM435,000 including the cost of remote voting facilities, door gift, scrutineers, etc.
The fifth perspective
Maybank will focus on sectors that can tide through the pandemic, and on the subsequent recovery phase to grow its loans across its home markets — particularly Singapore and Indonesia — where negative loans growth was recorded in the past two years.
As vaccinations are rolled out progressively across its home markets in 2021, economic recovery is expected. Maybank looks poised to recover from the crisis, however, I would also consider other candidates like Public Bank if I intend to add a Malaysian bank stock to my investment portfolio.
Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »