10 things I learned from the 2023 Maybank AGM

Established in 1960, Malayan Banking Berhad (Maybank) is the largest bank and the largest listed company in Malaysia by market capitalisation. Maybank is a household name in Malaysia and has a large presence in ASEAN. Its mobile and internet banking market share in the country were impressive — at 53.1% and 50.2% in 2022 respectively.

Here are ten things I learned from the 2023 Maybank AGM.

1. Maybank’s operating income increased 8.5% year-on-year to RM27.6 billion in 2022. It benefited from loans growth across its home markets, namely Malaysia, Singapore, and Indonesia as well as the rising interest rate environment.

• The bank’s net fund-based income increased 8.4% year-on-year to RM20.7 billion in 2022. The net interest margin grew 7 basis points year-on-year to 2.39% in 2022 as the overnight policy rate in Malaysia was raised by 100 basis points to 2.75% in 2022.
• Non-interest income increased 9.0% year-on-year to RM6.9 billion in 2022 driven by ‘higher mark-to-market gains on financial liabilities and foreign exchange. The non-interest income was offset by lower unit trusts commissions, underwriting fees, and brokerage income. The contribution of non-interest income to operating income is expected to increase from the existing 25% to 32% in 2025.

2. Net profit was affected by the one-off prosperity tax and increased 1.7% year-on-year to RM8.2 billion in 2022. Without the prosperity tax, net profit would have grown 12.9% year-on-year instead in 2022. The bank’s asset quality improved as net impairment losses (mainly from loans) eased 13.7% year-on-year to RM2.8 billion in 2022. Dividend per share was maintained at 58 sen in 2022 while dividend payout ratio increased slightly from 84.5% in 2021 to 84.6% in 2022.

3. The bank’s cost-to-income ratio increased in 2022 mainly because of higher personnel costs driven by collective agreement adjustments. The ratio may increase further to 47.5% in 2023 as the bank enhances its IT and sustainability initiatives. The bank aims to increase its IT-related spending from 2.5% of revenue currently to more than 5% in 2025, in line with regional players.

4. Malaysia is the only home market that saw a deterioration in gross impaired loan ratio from 1.19% in 2021 to 1.38% in 2022 as mentioned by Permodalan Nasional Berhad (PNB). CEO Dato’ Khairussaleh Ramli replied that some retail and SME borrowers could not service their loans after the expiry of repayment assistance programmes while loans from some corporate borrowers were impaired in 2022. These customers mainly came from the construction, agriculture, wholesale, and retail sectors. Net credit charge off rate is targeted to hover between 35 basis points and 40 basis points in 2023.

5. Total gross deposits grew because of fixed deposits growth primarily in Malaysia and Singapore in 2022, but was offset by depleting funds from low-cost current and savings accounts (CASA). As a result, CASA ratio dropped from 47.1% in 2021 to 40.9% in 2022 as interest rates rise but was still above its pre-pandemic level. In general, consumers place their funds in fixed deposits with higher yields instead. Maybank’s net interest margin is expected to compress between 5 basis points and 8 basis points in 2023 as the increase in the cost of funding will exceed the hike in interest rate amid stiff competition for deposits and slowdown in loans growth.

6. Maybank has no exposure to the recently failed U.S. banks, namely Silicon Valley Bank, Signature Bank, and Silvergate Bank as well as Credit Suisse AT1 bonds and Adani Group. Investors were particularly concerned as these overseas banks failed.

Bank Negara Malaysia (BNM) published that Malaysian banks are resilient and have strong capital and liquidity buffers. In general, Malaysian banks have a wide depositor base with no specific concentrations in particular segments or liability structures. The banks have adequate high-quality liquid assets in the event of a liquidity stress. Maybank’s securities portfolio accounted for about a quarter of Maybank’s total assets compared to Silicon Valley Bank at about 50%.

Maybank’s liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) remained healthy at above the central bank’s 100% minimum requirement threshold. LCR measures a bank’s ability to withstand net cash outflow for 30 days with its high-quality liquid assets. On the other hand, NSFR measures the bank’s proportion of assets that can be readily converted to cash in the middle of a liquidity crisis over a longer horizon. Risk assessments and internal controls are in place to mitigate similar situations from happening to Maybank. The CEO attributed Maybank’s stability to its governance and stakeholder trust.

7. PNB noticed that Maybank Indonesia’s return on equity (ROE) between 5% and 6% was lower than its Indonesian peers of similar size. The CEO explained that the bank’s ROE was due to the lower risk profile of credit assets and portfolio-wide restructuring post-pandemic. It was similar to its competitors like Panin and Permata. Several banks with high ROEs have more aggressive business models with higher fixed income portfolio and use special purpose vehicles to transfer non-performing loans. Further, the top four banks in Indonesia own about 55% of the sector’s assets and record ROE between 16% and 22%.

8. PNB pointed out that deposits from Maybank Indonesia’s community financial services segment declined by approximately 10 trillion rupiah or equivalent to about RM3 billion. The CEO replied that the bank deliberately reduced the high-cost time deposits and the relevant cost from 4.15% in 2018 to 2.09% in 2022. Maybank Indonesia’s LCR remained above the minimum threshold and focuses on getting CASA deposits that are expected to contribute to half of total deposits instead.

9. Net profit from the Group Insurance & Takaful plunged 53.2% year-on-year to RM436.3 million in 2022 on the back of lower revenue. The lower net profit was due to lower underwriting profit as a result of high surrenders of a universal life product in Etiqa Singapore. This product has a short-term guaranteed crediting rate of up to 2.1% and has no early termination penalties. As interest rate rose in 2022, many customers withdrew their funds from the insurance and invest in higher-yield market alternatives instead. This product was withdrawn from the market and adequate necessary provisions associated with this product has been made.

10. Banks in general including Maybank are not affected by the proposed changes in the Hire Purchase Act 1967. The interest calculation will be changed from flat interest to reducing balance rate and will only be applicable to new hire purchase loans. Maybank will also lease Menara Merdeka 118 from PNB and be moving into the world’s second tallest building in 2025. The bank has the naming and signage rights of the building. Further, oil and gas non-retail borrowers accounted for approximately 3.5% of the bank’s gross loans and fixed income securities in 2022.

The fifth perspective

Maybank’s business resilience was evident in its financial performance in the past few years. Further, it met all minimum regulatory requirements as set forth by the central bank. As it banks on a number of areas including Islamic finance and cross-border payments to grow in the future, it continues to be favoured by Malaysian dividend investors.

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