KUALA LUMPUR: The new bank in town, MALAYSIA BUILDING SOCIETY BHD (MBSB), is more bullish on its growth prospects as compared to its peers.
MBSB is targeting a loan growth of about 5% for the financial year ending Dec 31, 2019 (FY19), as compared to its FY18 loan growth of 3%.
The group’s loan growth target is somewhat higher than industry estimates as projected by Maybank Investment Bank Research. Following lacklustre results reported by the banking sector, the brokerage has since trimmed overall loan growth and domestic industry loan growth estimates from 5.1% previously to 4.7%.
Speaking after the group’s AGM, MBSB group president and CEO Datuk Seri Ahmad Zaini Othman said loan growth would be driven by new revenue streams such as trade finance, treasury, wealth management products and services, as well as alternative financing like peer-to-peer lending.
“With the new products and services, we are also looking at a return on equity (ROE) of 10% this year.
“Our non-performing loan ratio is currently at 1.2% to 1.3%, and we should be sustaining at these low levels which are on par with the industry average,” he said.
In FY18, MBSB generated an ROE of 8.2%.
Fresh from obtaining its banking licence last April, MBSB has remaining RM1bil in excess of assets to be converted into Islamic assets, representing 10% to 12% of its asset portfolio.
Following that, MBSB will restructure its operations to make its wholly owned banking subsidiary, MBSB Bank Bhd, the holding company and ultimately taking over the group’s listing status.
This process is likely to take two years, which is well within the timeframe of three years given by Bank Negara for MBSB to convert all its assets to Islamic assets.
According to Ahmad Zaini, the asset-conversion process requires time, as there are impairment issues to resolve. At the end of both processes, MBSB will obtain full syariah-compliant certification or endorsement.
“This opens up a lot more opportunities once MBSB becomes a syariah-compliant stock, as it would be easier to attract more investments,” he added.
MBSB Bank is the second-largest full-fledged Islamic bank with 46 branches nationwide. Going forward, the bank will transform several of its branches into digital outlets.
MBSB has embarked on its online banking and looks to ramp up foreign banking and cash management solution services this year.
On impairments, Ahmad Zaini said the group was closely monitoring the expected credit losses (ECL).
“Normal impairments would still be there, as with the personal financing and retail segments. What we need to observe and manage is corporate impairments and so far, we are managing that quite well.
“We are on an aggressive mode towards collections for existing impairment by placing more workforce in the recovery of early care accounts and hopefully, that would manage our impairments over the next 12 to 14 months,” he said.
Ahmad Zaini explained that under the Malaysian Financial Reporting Standards 9, the group is required to provide for a late impairment of one to two days.
For the first quarter of FY19, MBSB registered a net profit of RM83.83mil, which was a decline of 73.5% year-on-year as compared to the same quarter last year.
The group saw a higher ECL of RM153.02mil during the quarter, which was mainly due to a write-back as a result of staging an improvement from stage two ECL to stage one ECL.
Stage one ECL includes financial assets that do not have a significant increase in credit risk since the initial recognition, or those which have low credit risk at the reporting date.
Stage two includes financial assets that have a significant increase in credit risk since initial recognition but do not have objective evidence of impairment.