PETALING JAYA: AMMB Holdings Bhd ’s plan to dispose RM553.91mil worth of non-performing loans (NPLs) would likely boost its net profit in the current financial year of 2019 (FY19) by about 18%, according to RHB Research Institute.
AMMB, which is Malaysia’s sixth largest banking group by assets, is projected to make a net gain of RM314mil to RM338mil following the proposed disposal of the retail NPLs of AmBank (M) Bhd and AmBank Islamic Bhd.
RHB Research Institute was positive on the plan.
“Assuming the completion is by end-March 2019, recoveries over the 12-month period would be about RM216mil to RM240mil. This works out to potential net gains of RM314mil to RM338mil, or about 18% boost to our FY19 net profit [target].
“On the flip side, the NPL sale would also mean lower recoveries in FY20, and trim our earnings by 9%. Credit cost would normalise to 33 basis points in FY20 compared to our current forecast of 13 basis points,” stated the research house in a note.
It added that the sale of the RM553.91mil worth of delinquent retail accounts would allow the management of AMMB to re-allocate the bank’s resources to more productive uses.
Aside from the boost to bottom line, RHB Research Institute also expects the NPL disposal to lift AMMB’s capital ratios.
Based on RHB Research’s estimates, AMMB’s CET-1 ratio could be enhanced by about 20 basis points to approximately 12%, up from 11.8% at end-Sept last year.
In a Bursa Malaysia filing on Jan 3, AMMB announced that its wholly-owned subsidiaries AmBank and AmBank Islamic had signed agreements with Aiqon Amanah Sdn Bhd and Aiqon Islamic Sdn Bhd, respectively, for the proposed disposal of the NPLs.
The transaction would involve NPLs amounting to RM428.11mil from AmBank and RM125.8mil from AmBank Islamic.
Their porfolios comprise 537,068 accounts and the borrowers are individuals and corporations who have undertaken industrial hire purchase, small and medium industry loans/financing, auto financing, mortgage, personal loan/ financing under cooperatives and credit cards.
The NPLs were fully-written off in the books of AmBank and AmBank Islamic.
Special purpose vehicles Aiqon Amanah and Aiqon Islamic are wholly-owned by Aiqon Capital Group Sdn Bhd. To date, Aiqon Capital had acquired NPLs in excess of RM43bil in face value, in Malaysia, Singapore, the Philippines, Thailand, Australia and Spain. RHB Research Institute has maintained its “buy” call on the stock, with a target price of RM4.73. An upside of 9% is expected for the stock.