KUALA LUMPUR: AMMB Holdings Bhd is seeing some stress on its asset quality for the second consecutive quarter, stemming mainly from its hire purchase portfolio, according to analysts covering the bank.
They had on Tuesday pointed out that the absolute non-performing loans (NPLs) rose 3% on-quarter to RM511.8mil net, with a large proportion coming from the hire-purchase segment.
They said AMMB's third-quarter 2014 net profit of RM423.1mil (+6.8% on-year) and nine-month net profit of RM1,329.6mil (+ 9% on-year) were largely in line with street expectations, accounting for 74% consensus forecasts.
CIMB Research analyst Winson Ng noted that AMMB management attributed part of the stress on its car loans to the implementation of the core banking platform which delayed the distribution of the notices and statements to the borrowers and affected the loan monitoring process.
"The bank does not foresee any further provisioning for this due to its strong loan loss coverage," he said.
Maybank IB Research banking analyst Desmond Ch'ng added that this situation gave the AMMB management reasons to scale back on the auto book now.
Ch'ng remained positive on the banking counter with his "buy" call premised on the group's focus on more profitable non-interest income growth.
"Positively, non-interest income continued to expand to 37% of total income for the quarter, with positive momentum from general insurance. Also positive was the group's control over costs and better net interest margins."
He said AMMB also had one of the highest non-interest income or total income ratios in the industry while its income ratio was one of the lowest which should continue to improve as efficiencies filtered through.
"Loan-loss coverage of 119% was also one of the highest in the industry, as is AMMB's collective allowance ratio of 2.2% versus Bank Negara's 1.2% minimum requirement," he said.
On the exposure to three counters listed in Singapore, Alliance Research analysts Cheah King Yoong said the group had conservatively provided RM60mil, representing 50% of its total RM120mil gross exposure to Blumont Group Ltd, LionGold Corp Ltd and Asiasons Capital Ltd. "With the group still actively engaged in its debt recovery process, we understand that any further provision, if any, will be immaterial to the group's overall earnings," Cheah said.
Public Invest research head Ching Weng Jin said in a note: "While some less-comfortable signs are starting to be seen, asset quality-wise, we continue to view the group's transformation-led growth positively and reaffirm our 'outperform' call with an unchanged dividend discount model-based target price of RM8.40."
He cited the slight expansion in loans book, registering a 1.3% increase in its portfolio size on a quarterly basis as AMMB continued on a targeted growth strategy."Year-on-year growth during the quarter saw a similar 4.2% increase, as it did in the second quarter of the financial year 2014, lifting its loans-to-deposit ratio slightly to 88.6%, closer to management's preferred level of about 90%."
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