Jury is out on banks

Menara Public Bank in Jalan Ampang and Menara AmBank in Jalan Yap Kwan Seng.

Menara Public Bank in Jalan Ampang and Menara AmBank in Jalan Yap Kwan Seng.

Jury is out on banks

TWO local banks, namely, Public Bank Bhd (PBB) and AMMB Holdings Bhd have started the ball rolling this quarter, releasing results that look starkly different, at least at first glance.

PBB, deemed the most prudent of Malaysian banks and often cited as a benchmark for the sector’s financial performance, reported a 5% decline in net profit to RM1.405bil for the fourth quarter ended Dec 31, 2018.

The bank said this came as income from its key retail and hire-purchase businesses declined.

It is worth noting that this is PBB’s second consecutive decline in quarterly earnings.

AMMB, on the other hand, saw earnings climb 59.7% to RM349.87mil in the third quarter ended Dec 31, 2018 from a year ago. Its earnings were boosted by mostly the effects of lowering its cost of operations and an increase in its recoveries.

While it is a commendable performance, the jury is out on whether AMMB’s third-quarter earnings are sustainable, going forward. This is more so given that the quarter’s numbers came from aggressive cost controls.

And how will the other banks do in this quarter? The point is, if a bank like PBB, known for its prudent and well-managed processes for the longest time, can report lower earnings citing less business, what can we expect from the other banks?

Hence, the jury remains out on this as the rest of the financial groups report their earnings next week.

Perhaps, a better indication of the industry’s outlook can be obtained then.

Banks are supposedly the backbone of a nation’s economy.

Needless to say, any indication gleaned from their performance should not be ignored.

Enforcing for better disclosure

THE move by the Securities Commission (SC) to reject an appeal by Lotte Chemical Titan Holding Bhd’s director, Cho Seongtaeg, sends a strong and positive signal to the market.

Cho had appealed against sanctions imposed for the failure to inform the commission of material developments prior to the company’s listing in 2017. Not only did the SC reject those sanctions, it also enhanced his sanctions by imposing a penalty of RM220,500 for the breach.

Recall that the initial public offering of Lotte Chemical on Bursa Malaysia, initially described as a big win for Malaysia, didn’t exactly turn out as sweet looking as expected.

On July 9, 2018, the SC reprimanded and fined the integrated petrochemical company, its two executive directors and Ernst & Young for failure to inform the commission of material developments prior to the company’s listing.

The commission had also reprimanded and fined Maybank Investment Bank Bhd for its failure to carry out appropriate due diligence on the company.

The stern action by the regulator indicates that it will not tolerate any shortcomings by issuers participating in the capital market. It also shows that post-corporate exercise, the regulator can catch participants and their advisers for not following the rules. This means that market participants, including investors, ought not to assume that initial screenings by regulators will capture all weaknesses in offerings coming to the market.

After all, this is how more mature markets such as Hong Kong operate, where regulators leave more of the due diligence process to advisers representing issuers coming to market. Only in that way can those capital markets handle the load of deals coming on board.

Naturally, there will be failures and shortcomings, but eventually, the system should smoothen out by regulatory action and advisers seeking to maintain a good reputation, which, in turn, leads to more business for them.

Bandar Malaysia back on track?

THE run-up to Prime Minister Tun Dr Mahatir Mohamad’s visit to China is already beginning to be felt.

First the Chinese ambassador to Malaysia disclosed that China Construction Bank is proposing to issue debt papers to help ease the country’s debt servicing burden.

News of the Panda bonds came a week after the government sealed a deal with a group of Japanese financial institutions to issue Samurai bonds to the tune of 200 billion yen (RM7.6bil).

Dr Mahathir is scheduled to lead a business delegation to China in April. Among other matters, the East Coast Rail Link (ECRL) project that has been put on hold, is expected to be revived.

The buzz in the market is that another China-related project – the development of Bandar Malaysia – could also be revived.

Under the previous government, the proceeds from the development of Bandar Malaysia were to be used to pare down the debts of scandal-hit 1Malaysia Development Bhd (1MDB).

However, the project did not take off and was shelved in May 2017, one year before the 2018 general election. After the new government took over, there has hardly been any mention of Bandar Malaysia.

Nevertheless, speculation of Bandar Malaysia being back on track came about after the new government gave its endorsement for the development of Tun Razak Exchange, which is also part of 1MDB.

Towards this end, the stock price of Iskandar Waterfront City Bhd (IWCity) has been on a tear the last few days of this week, gaining 31% in the last two days of trading.

This is not the first time that IWCity’s shares have been active on the back of speculation of the revival of Bandar Malaysia.

This is because IWCity’s parent company - Iskandar Waterfront Holdings - was the partner for China Railway Engineering Corp to acquire and develop Bandar Malaysia.

There is no deal on the table, but Dr Mahathir’s visit to China has been fodder for stock-market enthusiasts.

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