KUALA LUMPUR: MALAYSIA BUILDING SOCIETY BHD (MBSB) will continue to bite the bullet with its estimated RM1.6bil impairment programme to “close the gap” towards becoming a full-fledged banking institution.
MBSB chief executive officer, Datuk Ahmad Zaini Othman, said the “positive part” about the programme was that it had pushed the group’s loan coverage ratio up to 92% from 77%.
“We are going to continue this impairment programme over the next year and a half, until 2017, and by then, the loan coverage ratio will be beyond 100%.
“This will translate into future profits if we are able to do aggressive collection and revenue is on a stable or upward trend.
“This is what I told our shareholders. There are certain sacrifices we have to make now for the betterment of MBSB in the future,” he said after the company’s AGM and EGM here yesterday.
Ahmad Zaini said the non-bank lender was likely to achieve an over 100% coverage ratio by this year.
He said the coverage ratio stood at 76% in 2014.
“Looking from that angle, this is what a financial institution is all about – being able to absorb losses and manage losses,” he added.
He said shareholders had raised many questions about the company’s impairment programme during the AGM, mostly on how it worked and its implications.
The programme had shaved off 66%, about RM700mil, from the company’s RM1.05bil operating profit last year, causing it to miss one of its two major key performance indicators (KPIs) for the year.
The non-bank financial provider missed its KPI on annualised group net return on equity, only achieving 5.4% of its targeted 12.5%, due to the programme which was initiated in the fourth quarter of 2014.
MBSB suffered a net loss of RM15.81mil in the fourth quarter ended Dec 31, 2015, compared with a net profit of RM393.07mil in the previous corresponding period, mainly due its allowances for the higher impairment losses.
For the financial year ended Dec 31, 2015 (FY15), net profit fell to RM257.59mil from RM1.02bil previously, while revenue rose to RM3.05bil from RM2.61bil a year earlier.
The impairment programme is in line with the recommendation by Bank Negara.
Asked how much the impairment would be for FY16, Ahmad Zaini declined to disclose.
He said the thrust of the company’s business plan in 2016 is about complying with prudential requirements.
“Once you have got the prudential requirements in place, the cost of doing business will increase.
“We don’t have the luxury of assets, but we have the burden of liability in terms of having to carry loans of higher liquid assets. The returns of these are low,” he said.
He said the company had also put in place a business model for industrial hire purchase.
“We started this about a year ago, and we are putting in another RM500mil, so a total of RM1bil of hire purchase programme in 2016.
“It’s having to go into the field with limited products and also having to comply 100% with regulations,” he said.
He added that collection was among the main strategies for 2016.
“We think 2016 is going to be a year of great challenges for the industry.”
As for loan growth, he said it is targeting a growth of 7%-8% this year.
On the company’s aspirations to become a full-fledged bank, he said it was not looking at applying for a licence at the moment.
After two failed mergers in recent years, he said the company had decided to focus on putting in place the required processes and policies towards becoming a bank.
“This is so that once we do embark on the application or another corporate exercise, we are ready,” he said.
On future merger partners, he said MBSB could also consider institutions which were involved in trading or investment activities, and possibly converting the licence in the future.
Earlier at the EGM, MBSB shareholders approved the resolution for its proposed RM2bil rights issue.
The Employees Provident Fund is MBSB’s largest shareholder with a 5.1% stake. Total assets as at end-December stood at RM41.1bil.
The stock closed 0.78% down to RM1.27, with 12.09 million shares being transacted. Its market capitalisation stood at RM3.61bil.
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