PETALING JAYA: Malayan Banking Bhd (Maybank) has targeted a return on equity (ROE) of around 9% for the financial year ending Dec 31,2021 (FY21).
The guidance represents only a slight improvement from the 8.1% achieved in 2020, and this, according to Maybank group president and CEO Datuk Abdul Farid Alias, is due to the continued soft income environment and elevated provisioning.
In addition to the expected improvement in ROE, Abdul Farid said, Maybank would also expect its group loan growth to gather momentum, as credit demand rises in tandem with the expected recovery in economy.
“We expect to see better loan growth this year as the economy picks up. But how much better will depend on how fast the economy grows, ” he said at a virtual press conference on the group’s results for FY20.
Maybank, the largest lender in Malaysia and fourth-largest in South-East Asia by assets, posted a 4% loan growth for its Malaysian operations in 2020, outpacing the industry growth of 3.4%.
This was underpinned by a 6.8% rise in the community financial services segment on strong consumer as well as business banking and SME demand.
Maybank’s operations in Singapore and Indonesia, however, registered declines of 1.9% and 14.8% in loan growth, respectively, mainly as a result of write-offs and repayments as part of a strategy to rebalance its portfolios to mitigate risks.
Consequently, group gross loans for 2020 came in relatively flat compared with a year ago.
Maybank expects Malaysia’s gross domestic product (GDP) to expand 5.1% in 2021, compared with a contraction of 5.6% last year. The group forecasts a GDP growth of 4.5% for Singapore and 5.3% for Indonesia this year, after falling 5.4% and 2.1% in 2020.
However, amid the lingering uncertainty over economic recovery, Abdul Farid said, Maybank remained cautious on potential asset quality slippages for some key markets.
He added that capital and liquidity conservation would remain the group’s key focus this year given the lingering uncertainty in the environment.
Abdul Farid said Maybank would maintain its 40%-60% dividend payout policy rate in 2021 to reward shareholders, while maintaining capital resiliency.
The group has proposed a final single-tier dividend of 38.5 sen per share, comprising an electable portion of 21 sen per share under its dividend reinvestment plan. This brought its full-year dividend to a total of 52 sen per share for 2020, translating into a payout ratio of 91.2%.
Maybank posted a net profit of RM6.48bil for FY20, compared with RM8.2bil in the preceding year. The group attributed the decline in earnings to significantly higher net impairment losses owing to the continued impact from the Covid-19 pandemic, although this was partly offset by higher net operating income and reduced overhead expenses.
Despite the challenging year, the group recorded a stable net operating income, which rose 0.1% year-on-year (y-o-y) to RM24.76bil, thanks to higher net fee-based income. This was driven by an increase in net insurance and investment income, as the group also took the opportunity to realise selected one-off gains from the better returns available.
Maybank said the rise in net fee-based income was, however, partially offset by a 4.9% decline in total net fund based income to RM16.65bil. This was mainly a result of a 17-basis-point (bps) y-o-y net interest margin (NIM) compression due to lower loans and security yields, as well as the net impact from the four cuts in the overnight policy rate, totalling 125bps, and the fixed-rate financing modification loss from the six-month blanket moratorium granted to customers.
Maybank’s NIM for 2020 stood at 2.10%, compared with 2.27% in 2019, well within the 2020 guidance of a 20-bps compression.
For 2021, NIM is expected to remain flat y-o-y, Abdul Farid said.
Gross deposits at the group level, meanwhile, expanded 2.6% with all its home markets showing steady increases, led by Singapore at 6.9%, Indonesia at 3.8% and Malaysia at 1.2%.
Maybank saw its asset quality improve last year, with its gross impaired loan (GIL) ratio declining to 2.23% in December 2020 from 2.65% in December 2019. Its loan loss coverage also improved to 106.3% in December 2020 from 77.3% a year earlier as a result of the higher provisioning undertaken during the year as well as the lower formation of new impaired loans.
Meanwhile, Maybank chairman Tan Sri Zamzamzairani Mohd Isa (pic, above) said that notwithstanding the challenges presented by the Covid-19 pandemic, the group had been able to demonstrate its resilience and ability to remain agile in managing the unprecedented risks and disruptions.
In his first public appearance as the group’s chairman, Zamzamzairani announced that Maybank would launch its long-term plan, code-named M25, next month. The plan would set out its roadmap and strategic objectives for the next five years to accelerate its growth trajectory and build an even stronger franchise in the region, he said.
Zamzamzairani was appointed Maybank’s chairman in October last year.